News & Blog

Have you ever bought a can of beans at the grocery store? It is pretty easy to do, right? You might be looking for baked beans or red beans, but all you have to do is look for the type you want, check the price and grab the can off the shelf. Wouldn’t it be nice if all purchases were that simple? Sorry, that just isn’t the case. Whether you are buying a car or opening a checking account, transactions these days can be complicated. Pricing schemes and paperwork are only a couple of the difficulties one might face.

Pricing a 401(k) retirement plan can be downright daunting, especially if you don’t do so on a regular basis, which very few people do. As an advisor to 401(k) plan sponsors, I use excel spreadsheets to analyze pricing structures in order to develop apples to apples comparisons for clients. I can tell you flat out that it is nothing like buying a can of beans at the grocery. However, if you make the effort, you can get an accurate comparison and potentially reduce the fees of your plan, which effectively means more money in participants and sponsors pockets. We do this for our clients at ThirtyNorth Investments.

Many plan sponsors attempt to analyze plan fees, get about half way into it and throw up their hands in frustration. Then they return to the many other pressing matters of their organizations. At ThirtyNorth Investments, we help our clients determine exactly what and to whom they are paying fees for their plans. We do this regularly, so we know where to look.

When we begin to decide about our can of beans, we look at the three main components of plan fees:

1. Administrative costs – You might prefer Trappey’s or Bush’s Beans. These costs are akin to the brand of the plan and include plan record keeping, administrative (including filing of Form 5500), accounting, legal and trustee functions. Often a Record Keeper handles this entire area and charges your plan on a percentage of assets or flat fee basis. We strongly believe plan sponsors should pay a reasonable flat fee or a low asset based fee for these services. The amount of dollars in an account should not change the required administrative work.

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Despite tumultuous headlines, global markets finished the second quarter of 2016 on a high note. In the weeks since quarter end, major US stock market indices have reached new all time highs. US stocks were up 3.84% through the first half of the year, measured by the S&P 500 Index. Emerging market stocks snapped a pesky losing streak, gaining 6.41% through June. International developed stocks suffered a setback with the UK’s Brexit vote in late June. The MSCI EAFE Index was down -4.42% year to date. Interest rates plunged to new lows after the Brexit vote and global bond prices soared. The Barclays US Aggregate Index was up 5.31% for the year. Both real estate and commodities fared well during the first half of 2016. Global REITS were up 12.33%, and the Bloomberg Commodity Index was up 13.25%.

Brexit, What Brexit?

On June 23rd, the U.K. voted to leave the European Union. The “leave” vote, titled Brexit, was unexpected, and markets reacted violently. The Dow Jones Industrial Average fell more than 600 points on Friday, June 24th.  The British Pound fell more than 7% overnight, to levels not seen since the mid 1980’s.  The Pound has not recovered its loss as many other financial markets have in the weeks since the Brexit vote.

One-Year Chart of British Pound to US Dollar

Pound Chart


After a sharp two-day drop, most global stock markets recovered quickly after Brexit. Bonds rallied as interest rates dropped to new lows, in anticipation of a rate cut in the U.K. and continued delay of a rate hike by the Fed. But the U.K. economy, European banks, and the U.K. property market continue to suffer.  Michael Hasenstab, global bond manager at Franklin Templeton, expects a 2% – 7% contraction in the U.K.’s economy over the next several years.(1)  That is a brutal economic disruption, as the U.K. must negotiate every trade agreement with the European Union, presumably on less favorable terms.  Hasenstab expects a modest hit to the remaining EU economy of 0.5% and minimal negative effects for the U.S. and emerging market economies.  Markets do not like surprises, and the Brexit vote was unexpected.  However, after the steep initial decline in global stocks, cooler heads prevailed, realizing that Brexit’s impacts outside the U.K. are likely to be minimal and won’t take effect for some time.

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Is the market not giving you what you want lately? Join the club. For the two years period ending in April, a 60/40 portfolio of world stocks and 5 year Treasuries is up a paltry 1.23%. That’s before costs and taxes. You’re portfolio is in the exact same place it was in early 2014. Sure, you’re long-term investor, but who has time to wait on a market like this?

When evaluating past returns of a 60/40 portfolio, it’s easy to view multi-year time periods as dots on a piece of paper. Sometimes we forget that, in the moment, 1, 2, or 5 years is a very long time. Investment managers like to look at 10 and 20-year time horizons for analysis. They often forget to consider the investor experience along the way. A child born at the beginning of the so-called “lost decade” was in the 4th grade before the S&P 500 return was positive in his lifetime. Think of all the milestones that happened between birth and 4th grade long division!

If the past two years has you down in the dumps, consider these other statistics about past market returns. Times like these are not uncommon. In fact, two years isn’t really that long of a time period for the market to be unforgiving. Let’s look at rolling six year periods of a 60/40 portfolio comprised of the S&P500 Index and the 5 Year Treasury bond.

Since 1926, there have been 1013 rolling six-year time periods. The average annual return over the past 90 years was 8.59%. Not bad for 60/40. During 38 of the 1013 rolling six-year periods, the 60/40 portfolio had negative returns. In 71 periods, or 7.01% of the time, returns were less than 2% per year. This is before investment expenses and taxes. In 98 time periods, 9.67% of the time, returns were below 3% per year. If low returns leave you wanting more, rest assured today is not outside the norm for past market behavior.

What about a globally diversified portfolio? After all, most investors today own a broader universe of stocks than the S&P 500 Index. The MSCI All Country World Index began tracking global stocks in 1988. There have been 269 six-year time periods since then. In 4 time periods, the 60/40 global portfolio had a negative return. In 43 time periods, 15.99% of the time, a global 60/40 portfolio returned less than 2% per year. By the way, the average return of the global portfolio was 7.33% per year.

Lackluster returns are not a new phenomenon. If markets were predictable, returns would be lower. Once you take the risk out the equation, you can’t expect to earn a high return. Even though investing is extremely frustrating at times, even for what seems a long time, remain in your seat. As a means of possibly reducing the likelihood of a down year, investors always have the option of forgoing stocks completely. That brings a portfolio’s expected return to the level provided by bonds and it likely means the investor has to save a much larger percentage of her earnings if she want to retire comfortably. However, as shown above, over six-year periods, remaining exposed to stocks generated respectable returns.

Mick Jagger and Keith Richards tried to tell us in 1969, that You Can’t Always Get What You Want, at least not exactly when you want it.


On April 6th, the U.S. Department of Labor (DOL) issued its final rule on the fiduciary standard for retirement accounts. The rule stipulates that brokers cannot give conflicted investment advice to consumers in 401k, IRA, or other qualified retirement plans. There is an exception that allows brokers to enter a Best Interests Contract agreement with customers to allow flexibility of services and products provided. This agreement stipulates that the broker will provide advice that is in the Best Interests of the client and opens the broker up to litigation, including class-action litigation, if the contract is not honored. Prior to the Best Interests Contract, brokers were able to force customers into arbitration agreements, keeping disputes out of the courts.

You might be asking yourself – Don’t brokers already have to look out for the best interests of their clients? The short answer, is no. The financial service community is broken into two (or three) types of regulatory regimes. Brokers, or registered representatives, operate under FINRA’s Suitability Rule. Brokers work for large and small broker dealer firms such as Bank of America’s Merrill Lynch, Morgan Stanley, Wells Fargo, and LPL Financial to name a few. Financial advisers, employed by Registered Investment Advisory firms, are held to a fiduciary standard. Insurance agents adhere to yet another set of rules, but many are also registered representatives who follow the suitability rule. The suitability rule is a lower bar than the fiduciary standard, allowing brokers to put their firm’s interest ahead of clients in many cases.

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If I simply told you that US Large Cap stocks were up 1.35% and bonds were up 3.03% in the first quarter of 2016, I’d be leaving out a large part of the story. In between January 1 and March 31, stocks declined as much as 10% in early February, only to reclaim the entire loss and post a small positive return by quarter end. That’s a rocky ride, even compared to historical market moves. International developed stocks fared worse, the MSCI EAFE Index was down -3.01% for the quarter. Emerging market stocks finally shined, with the index up 5.71%. Commodities posted a slight positive return, up 0.42%. Global REITS had strong performance, up 7.22% in the first quarter of the year.

While Americans watched our new favorite reality show “The 2016 Presidential Election,” there were several fascinating and important stories developing for investors around the world.

Negative Interest Rates in Japan

On January 29, the Bank of Japan (BOJ) announced a negative interest rate policy. The Japanese equivalent of the Fed Funds rate is now -0.1%.[1] This negative policy rate is effectively a penalty on banks that do not lend aggressively since banks have to pay interest on excess reserves. The BOJ is now the second major central bank to adopt a negative interest rate policy. The European Central Bank (ECB) has been negative since mid 2014. Other countries with negative policy rates include Switzerland, Sweden and Denmark.

The BOJ’s announcement was a shock to market participants, sending Japanese stocks higher and the Yen lower against the US Dollar. Previously, Bank Governor Haruhiko Kuroda stated that Japan would not adopt negative interest rates. Currently 60% of global government bonds are paying less than 1%, with almost 30% paying less than zero. [2] It remains to be seen whether these extreme and unconventional central bank policies will have a positive or negative effect on their home economies.

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If you are a movie enthusiast, you may have enjoyed 2015’s Bridge of Spies, a Spielberg/Hanks historical drama set in 1957. Hanks plays Ray Donovan, a New York insurance lawyer asked by the government to provide a pro bono defense for Rudolf Abel. Abel is accused and convicted of spying for Russia in the midst of the Cold War. (Spoiler alert – if you intend to see the movie, you may want to skip the first two paragraphs). Donovan’s argument before the Supreme Court saves the spy from the death penalty. The CIA then becomes involved and Donovan finds himself in a tense negotiation in East Berlin with the Soviets for a prisoner swap. (A bit more exciting than his normal insurance practice!).

The Russian spy was especially calm throughout his capture, trial, and subsequent exchange into the hands of the Russians who were none too pleased that he was caught. I cannot imagine what awaited him in Russia. When asked on several occasions if he was alarmed, or if he ever worried, his response was a consistent, “Would it help?”, a simple but powerful response.

I think about this as it relates to the ups and downs of the market. We all occasionally suffer from strong reactions to market downturns. Some of us cope better than others, but it does not feel good to see the value of your account drop. After all, the timing of a bounce back is unpredictable. Frustration and genuine fear are common and painful reactions.

Would it help to listen more to the financial news when the market begins a downturn? Would that help us figure out what to do? Knowledge is power, right?   Unfortunately, much of what you hear is a dramatic sound bite or personal opinions regarding an uncertain future. Add the presidential election rhetoric and the drop in price of oil, and you can quickly become pretty depressed about the state of economic affairs in our country and around the world. This commentary is rarely useful for long-term investors or anyone with a well-diversified strategy. Bottom line – the noise doesn’t help.

Would it help to take action – believing that action is always better than staying still? Makes you feel more in control? Change up your investments so it doesn’t happen again? For instance, would it help to move to cash, recognizing that timing when to get back in to the market is a losing game? It is a likely prediction that the market will rebound before you are back in.

If your risk tolerance has changed due to your age or financial circumstances, then this should be fully considered. Otherwise, making a change in a downturn is rarely a smart move.

Staying the course is not indicative of not knowing what to do. Staying the course is a deliberate choice, which has proven to be successful when you have a well-developed long-term strategy.  Despite that, staying the course is oftentimes the hardest choice of all.

As I write this, the market has rallied and erased the losses from the first two months of the year. Now the commentary suggests that it won’t last. We should brace ourselves for a very volatile year. Nothing is right in the world. but then again it never is.

As for me, I am prepared to stay the course, focus on the long-term strategy, and put the ups and downs into a balanced perspective. And that, my friends, is what I believe will help.

Suzanne T. Mestayer


Index averages hid much of the investor experience in 2015. The S&P 500 Index finished the year up 1.38%, but it was led by strong performance in a handful of stocks. The index level of the S&P 500 was actually below where it started the year, and dividends accounted for the positive total return. International stocks were down -0.81% in 2015, dragged down by the strength of the US dollar. Emerging market stocks suffered in 2015. The MSCI Emerging Market Index was off -14.92%. Historically low interest rates did not help bond returns. The Barclays US Aggregate Index was up 0.55% for the year. Commodities continued to suffer with a further drop in oil. The Barclays Commodity index was down -24.66%. Global real estate posted a slight positive return. The S&P Global REIT index was up 0.59%.

Much of the investor experience masked by these averages is attributable to stellar performance from what the media calls the FANG stocks; Facebook, Amazon Netflix, and Google (now known as Alphabet). Here are the 2015 returns for these four high-flying, growth stocks:

  • Facebook: 34.15%
  • Amazon: 117.71%
  • Netflix: 134.39%
  • Google: 44.16%

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There have been countless articles written on the cost of financial advice in recent years.  Every time I pick up a Wall Street Journal or a popular personal finance column there’s a story about fees. They are right to criticize.  Financial services costs remain high even though advances in technology have reduced costs dramatically.

This laser-like media attention on costs has sparked a revolution in financial services. Investors are flocking to low cost ETFs, whose AUM surpassed that of hedge funds in 2015. For Do-It-Yourself investors, online, automated investment services called robo-advisors provide basic asset allocations for one-third the traditional costs of similar advice.

These reductions in costs are good for investors. After all, the less you pay to invest, the more returns you get to keep. I would like to see the media turn its attention now, to the quality of financial advice, not just the cost.

Providing financial advice does not have a uniform education requirement, licensure, continuing education, or self-regulatory institution like many other established professions. Anyone who can pass a low level test has the right to call him or herself a “financial advisor.” Financial planners do not need credentials to enter the field.  The disparity in the quality of financial advice investors receive can be enormous. Some financial advisors have zero educational background or training in investing. Other advisors have PhDs and many professional designations. Might a difference in the price of these two individuals make sense?

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A wave of downward volatility greeted global investors during the third quarter of 2015. Many markets were down more than 10% from recent highs. This is often called a market “correction” by the media. Emerging market stocks took the worst of the hit. The MSCI Emerging Markets Index lost -17.90% during the quarter that ended September 30. Year to date, the emerging markets index is down -15.48%. International developed stocks gave back gains posted in the first half of the year. The MSCI EAFE Index was down -10.23% for the quarter and is -5.28% for the year. US Stock fared better than international stocks and were down -6.44% during the quarter. Commodities lost -14.47% during the quarter and are down -15.80% year to date. Global real estate also suffered losses, and the S&P Global REIT Index is down -4.36% year to date. Investors rushed to bonds for safety, pushing interest rates lower yet again. The Barclays Aggregate Bond Index is up 1.13% for the year.

Here is a word of caution before I continue discussing recent negative performance. Long-term investors should avoid making changes to their portfolio based on short-term market movements. The volatility we’ve seen this summer is neither extraordinary nor outside the norm. The S&P 500 Index declines on average -14.2% in a calendar year. [1]  The most recent pullback of -12.7% (from the highest point to the recent low) is less than that 35-year average. The rest of this letter is an explanation of what happened during the quarter and not a prediction. In ThirtyNorth’s conference room in New Orleans, there is a real crystal ball. It serves as a constant, tongue-in-cheek, reminder that no one can predict the future.

1,000 Point Drop

On Monday, August 24th, the Dow Jones Industrial Average opened down over 1,000 points. The index bounced back and ended the day off 588 points. “Dow Drops 1,000 Points” is an exciting and fear-provoking headline. Remember that 1,000 points on a base of 16,500 is 6.1%. Five years ago, the Dow Jones was at a level of 10,000, and a drop of 1,000 points would have been a 10% decline. Why do we have such difficulty interpreting a 1,000-point drop? Many financial headlines made comparisons to “Black Monday”, the day in 1987 when the Dow Jones dropped and closed down 22.6%. Can you guess how many points the Dow dropped on that day?

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It’s a bit auspicious that I am reading a book about behavioral economics at the exact moment global stock markets start roiling again. Richard Thaler’s “Misbehaving: The Making of Behavioral Economics” is a memoir of sorts. It explains the short history of this important field of study. The book was a gift from a sales contact at a fund management company. I can’t think of anything better to be reading at this exact moment.

A jaw dropping 1,000 point down open for the Dow Jones Industrial Average this morning followed a 6% decline in US markets last week. Wow, 1,000 points! That is the largest intra-day decline ever, if you are measuring in points. I vividly remember the 777 point drop in the heart of the financial crisis in September 2008. Was this morning’s drop larger than that? Today’s market hysteria quickly snowballed, and by mid-morning people were using a #BlackMonday hashtag on social media. I do not watch television during the day, but I imagine this term was plastered all over the 24-hour news shows as well.

Let’s take an enormous step back here. Black Monday refers to a Monday in October 1987 when the Dow Jones Industrial Average lost 22.6% of its value. In one single trading day, the market lost almost one quarter of its value. In contrast, this morning’s 1,000 point drop was only 6.6% of the market’s total value. A 22% drop today would be more than 3,700 points. Referring to today’s market as Black Monday is inaccurate and irresponsible.

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