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Where Did It Go?

When special US government programs distribute money to individuals broadly, we often wonder how the money was actually used. It can occur after a natural disaster, and it happened in March with the $2.2 trillion CARES Act stimulus in response to the pandemic.

Federal Reserve Bank of New York economists published in Liberty Street Economics the results of surveys they conducted to answer this very question. You can read the entire report, “How Have Households Used Their Stimulus Payments and How Would They Spend the Next?” Here are the key points:

  • While the payments ($1,200 for qualifying adults and $500 for each child) were a significant boost to the economy, only a small share (29%) was spent by June 2020. The remaining funds were allocated to savings (36%) and paying down debt (35%).
  • Survey results suggest “households expect to consume even smaller shares of a potential second round of stimulus payments, while they expect to use a higher share to pay down their debt”.
  • Across all demographic sectors, an average of 8% of the funds were spent on non-essentials, such as hobbies, leisure or other items not absolutely necessary. This 8% is included in the 29% spent by June 2020, as is 3% which was donated.
  • The same survey found respondents receiving Unemployment Insurance payments during June consumed in approximately the same percentage (28%), but that amounts allocated to savings were less (23%) and a greater amount was used to pay down debt (48%).
  • The New York Fed Survey of Consumer Expectations (SCE) is a nationally representative, internet-based survey of approximately 1,300 U.S. households. The analysis in the post is based on data collected as part of two special surveys on the pandemic fielded in June and August, 2020. In the June survey, 89% of respondents reported that their households had received a stimulus payment.

While the allocation of these payments varies among differing income and age levels, the results speak to the high uncertainty of how long the pandemic will last and the possible economic impact on recipients. Questions abound about how much money will be needed and when. For example, were parents concerned about “holding the spot” with their daycare provider? Was there concern about how long rent forbearance would last? Concern about layoffs this fall?

For a rough validation of the results of the survey, you can consider that the average U.S. FICO credit score increased in July to 711, the highest level in the past 15 years. Consumer debt levels represented by credit card balances have also decreased from $6,934 in January to $6,004 in July.

The average American was likely using sound financial strategy with their stimulus payments. The choice to forego spending where possible, add to cash reserves, and reduce personal debt is a healthy one during uncertain times and should reduce the possible negative economic implications as we work out of this situation.

Suzanne T. Mestayer is managing principal of ThirtyNorth Investments, LLC.

All investment strategies have the potential for profit or loss.

ThirtyNorth Investments, LLC, is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.

For disclosures, please click here.


Thoughts in Charts: Vaccine Progress Report


There is a chance that the investment world is keeping track of vaccines about as obsessively as health organizations. Along with the physical and mental health implications, the economic stakes of a vaccine are high as well.

As a result, we have seen wonderful graphical vaccine progress reports. This table came across my deck from a Goldman Sachs piece, and I found it very informative.

I do love when there is a lot of information in a nice tidy visual!

For disclosures, please click here.

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Thoughts in Charts: How long do you have?

At a firm where one of our key investment principles is that “time matters”, I love a chart that show why we value it. Before I dig in though, let me say loud and clear that past performance does not guarantee future results. I use history to teach me, but I don’t count on it repeating itself.

I’ve told you before that I’m a skeptic by nature, so I’m going to start by focusing on the bottom of each range. These are the worst 1, 5, 10, and 20-year-end returns from 1950-2019. It’s the historical worst-case return.

The first thing that jumps out is that a single year downside in a diversified stock portfolio has been as bad as -39%. Got it. In a single year, it can be bad – really, really bad; however, there has historically been enough good that the 5-year worst return is much less negative at -3%. That is significantly better, but let’s be real, if I lose 3% over 5 years, I’m a little frustrated. Frankly, if I have been in the market for 10 years, and I lose 1%, I’m still frustrated.

Here’s how time matters: if I coached myself to stay steady through some of those frustrating 5 and 10 year periods, the 20-year stock portfolio would have resulted in the most beneficial range of returns for my long-term goals. A stock portfolio’s worst 20-year return over the last 69 years was positive 6% – better than a bond portfolio or a 50% bond and 50% stock portfolio. On top of that, it also had the larger upside periods.

Let’s take a step back and look at the blue bars representing a diversified bond portfolio and the grey bar representing a portfolio that is 50% stock and 50% bond. It’s clear that the bond portfolio can act as a ballast. For the end of each year over the 69-year period, a 50% bond portfolio never had a negative worst-case return in a period longer than 5 years.

If you are still tracking with me, I’m going to give you my favorite nugget from this chart. The best 10-year returns on a 50% stock 50% bond portfolio are the same as a bond portfolio, but their worst case is better! I tend to think about bonds helping to limit losses, but in the 10-year time periods, including stocks in the portfolio actually limited downside as well.

Time does matter.

For disclosures, please click here.

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Thin(k) About Your 401(k) Plan: Long-Term Investing – Election Year Volatility

I can hardly help allowing the uncertainty that comes during a Presidential election year from creeping into my investor mindset.  I know many factoids about the market performance every four years when we elect a President.  Volatility is a certainty.  Typically markets perform well during election years and worse the year after, but nothing like this is written in stone.  In the short-term, anything can happen in the stock and bond markets.

We also observe that partisan government favors the markets in general.  It stands to reason that a President’s ability to enact legislation depends upon whether or not the House, Senate and President share the same political party.  Further, a President’s ability to push through radical policy change has many hurdles based upon the makeup of Congress.

Myriads of research and articles are available on the topic of the markets during and after election years.  Here is a link to an article I recently found interesting.

Here’s How The Stock Market Has Performed Before, During, And After Presidential Elections

Yet, I still find it difficult to not let the worry of the future creep into my mind.  I found the table below to be a helpful reminder of the impact maintaining a long-term view during short-term volatility especially during Presidential election years.  I’d be interested to know if this is helpful to you.


For disclosures, please click here.

The Great Unloved of 2020 (Investments, that is)

Listening to the financial news, you may conclude that the stock market is rebounding nicely from the March lows, even considering September’s predictable volatility. When you look at your personal September 30 investment report, however, will you still feel so pleased?

We know that large technology companies are driving the overall markets, and that the five largest companies are contributing the lion’s share of the gains.  If you hold a Large Cap Growth fund, you are likely very pleased with its year-to-date results.

Almost all other holdings are lagging, and they offset the technology sector’s strong 2020 returns. The ones that stand out, in just a few categories and with results through Friday, September 25th, are:

By size –

Small cap companies – These are U.S. publicly traded companies that are small on a relative basis.  The representative Russell 2000 is down -10.7% YTD. Small cap value companies have been particularly hard hit.

By geography –

Developed non-US – These are companies represented by the MSCI EAFE Index (Europe, Australia and the Far East), which is down -8.15% YTD.

By sector –

Energy and Financials – Energy and Financial companies have done far worse than other companies based on the S&P 500 sector analysis.   Energy is down -47.7% YTD and Financials are down -22.1% YTD.

Every year will have its winners and losers, but this year there are far more on the losing side. The above are just some that, as a group, are below their values at the start of 2020.  Now we understand better why our diversified portfolio is not performing as we would hope.

Should we just continue to ride it out?  Should we change our allocation to exit these hard-hit positions?  There are reasons why staying invested in these areas makes sense, despite recent returns.

While small public companies are lagging in 2020, the Callan Periodic Table of Investment Returns 2000-2019 reports that small companies outperformed large companies in 12 of the past 20 years.  Internationally, 65% of the world’s capital markets are outside of the U.S. and, as such, are diversifiers from single country risk.  And we all know that the economic downturn from the pandemic has had a negative impact on both energy and financials, in addition to the implications of low interest rates. Do we really believe that this impact will persist well into the future?

If we have a long-term investment strategy that considers diversification a basic principle, then a wholesale change in our allocated investments due to recent results takes us off course.  What may be considered, however, are the opportunities to rebalance our positions, possibly trim as we look to the future, and review the comparative performance of the underlying holdings.

Keep in mind, even the most unloved investments may redeem themselves as we move to 2021!

For disclosures, please click here.


Thin(k) About Your 401(k): Plan Plan Fees: The Three Rs – They Are Real And Must Be Reviewed And Deemed Reasonable

I know something’s wrong when a business owner / plan sponsor tells me that they don’t pay any fees for their 401(k) plan.  I can’t think of a case where this could be true.  The plan sponsor might not be writing a check for services, but there’s no doubt a plan provider is collecting a fee.  Plus, plan sponsors have a fiduciary obligation to regularly review, understand and judge those fees to be reasonable, and document the review process.  So, if a plan sponsor thinks there are no fees? That could be a problem.

How do service providers collect fees?  There are various ways and many of these can be confusing for plan sponsors. Providers are often paid directly out of the employee’s accounts in the form of asset-based or per-account fees.

Record-keepers usually charge a fee in the form of an asset but could charge a flat fee per year.  Either way, that fee is most likely deducted from the participant’s account.

Third Party Administrator fees are sometimes bundled with the record-keeper’s fees but could also be billed directly in which case the plan sponsor would write a check.

Investment management fees charged by the investment funds or ETFs offered in the plan lineup are asset based and taken directly from the assets of the fund.  Sometimes, the investment management fee, the record-keeper/TPA fee and other fees are reported as one number appearing to be the cost of the investment choice.

Here’s the good news: plan fees are generally disclosed in an annual disclosure document by the record-keeper.  The plan sponsor must review this disclosure, understand what each service provider is being paid, deem the fees reasonable and document the review.  Yes, this is the plan sponsor’s fiduciary duty, but investment advisors can assist and help plan sponsors understand where fees are coming from and how they’re collected.

The bottom line is that no one I know in the financial services world works for free.  Some plan fees are reasonable, but upon review, others are not.  Because fees are deducted from the participant’s account, they effectively reduce the growth of the account.  That means it’s critical to ensure fees are reasonable for the success of the plan.


For disclosures, please click here.

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Choosing the Right Financial Road

When you don’t know where you are going, any road will get you there.  – Lewis Carroll.

This is true in life, careers, and our financial futures. It is particularly relevant when the stock market is as volatile as it has been throughout 2020. Our human tendency is to react in ways that undermine our long-term investment success, motivated through either fear or greed. We are especially susceptible when we don’t have clarity about where we are going

In her recent CityBusiness article, Suzanne outlines 3 tips to choosing the road for your financial future. Click here to read more.

For disclosures, please click here.

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Thoughts in Charts: Municipal Bond Double-Take

I love when a chart makes you do a double take. When a chart makes you go “Yes!” but then after another minute “Oh”.

Because municipal bond yield is usually exempt from state, local and federal taxes, investors are willing to take less yield than they would for a treasury – thus the squiggly line is under 100 most of the time.

Cue 2020. Yield from 10-year yield from municipals is now better than what we can get from a 10-year treasury.

Wait, wait, before you think you figured out how to get some steady income from municipal issued bonds, it’s worth a pause to remember the math driving the line in this chart. The 10-year treasury yield (the base of the number) has gone from well over 2% to about .70%. It doesn’t take much muni yield to create a number that will graph higher than 100.

In fact, muni yield has been on a wild ride in 2020, but has settled out at an all-time low as well. Ouch! The main advantage of buying a municipal fund is the tax savings on the yield. Unfortunately, this space is also facing significant challenges as municipalities and states struggle with revenue losses during COVID. It is unclear how badly our local governments are struggling because their fiscal year has just ended, and they don’t report for several more months.

Clearly this is a space we are watching closely.

For disclosures, please click here.


Is a 60/40 Investment Allocation for Everyone?


One of the most important choices we have with our investments is the allocation of our dollars. How much will we invest in stocks, in bonds, or in any other assets? Large or small, growth or value?  Studies have shown that over 90% of the returns on our investments are driven by this very basic decision.  It should not be taken lightly, and many questions should be asked to help determine which allocation makes the most sense for our situation and risk tolerance.

As we read about this topic, we often find that 60% stocks/40% bonds has become almost a classic for a balanced portfolio. Do we really believe this to be the right allocation, or are we just  unwittingly using 60/40 more often than not?  Most importantly, it should reflect our unique needs and goals.

There are times when an investor will likely want to invest more or less aggressively. For example, a 100% stock portfolio may be great when you are 35, with a very long runway until retirement to absorb market fluctuations. It’s not always so wise when you need to tap your investments for living expenses in retirement.

The best retirement plans consider the answers to a host of differing questions:

  • Do you have health concerns?
  • Do you plan to retire completely or gradually reduce your work life?
  • How do you plan to use your time? Travel? Hobbies? For how long?
  • Are you depended upon for the needs of other family members? Caretaking responsibilities, or financial needs?
  • Do you know how much it will cost to maintain your desired standard of living? Will you really cut your costs, or will the costs of your post-retirement simply replace your current spending?
  • What is your best strategy for claiming Social Security benefits?

Your answers to these questions, as well as many others, should create a plan reflective of you and your needs.

Why is the 60/40 allocation so common? It’s a good balance when you need it.

The 60% often reflects the need for continued investment growth historically obtained from stocks. With life expectancy increasing, many people are planning a 30+ year retirement. In contrast, bonds traditionally provide relative stability and fixed income. In our current low interest rate environment, though,  the income aspect may become harder to achieve. As we age in retirement, the stocks/bonds ratio may move to 50/50 then to 40/60 and so on. It should be a process customized to your situation.

In the years leading up to your retirement, you should carefully consider your very personal answers to the questions above and plan accordingly. And don’t be surprised if it leads to a  60% stocks/40% bonds allocation along the way!

For disclosures, please click here.


Thin(k) About Your 403(b) Plan: Catch-Up Contributions – A 403(b) Plan’s Special Extra

We talk a lot about 401(k) plans, but many nonprofit organizations including churches, non-profit hospitals and public-school systems use the 403(b) as a qualified retirement plan for employees.  And, like the 401(k), you can “catch-up” in the 403(b), which has a very interesting additional catch-up provision.  As in a 401(k), employees who are 50 years of age and older in a 403(b) can make contributions beyond the maximum allowed.  These amounts are determined annually.  For 2020, employees can save $19,500 and those over 50 can make a catch-up contribution of an additional $6,500.

Here is where it gets interesting.  As long as the plan allows, employees with 15 years of service are eligible to make a catch-up contribution prior to reaching 50 year of age.  Of course, there is a limit to how much, which is determined by the lesser of:

  1. $3,000
  2. $15,000, reduced by the amount of additional elective deferrals made in prior years because of this rule
  3. $5,000 times the number of the employee’s years of service for the organization, minus the total elective deferrals made for earlier years.

You might wonder, what happens if an employee is eligible for both the 50-year-old and the 15 years of service catch-up provisions.  As long as the plan allows, the participant can use both.  However, the 15-year catch-up is subject to a lifetime limit of $15,000 as well as other tests; and savings in excess of the limit must be first applied to the 15-year catch-up.  Additionally, Click here for additional information on 403(b) contribution limits.  And, make sure you talk to your tax professional before taking advantage of this potentially great way to save more for retirement through your 403(b) plan.


For disclosures, please click here.