I wouldn’t call 2020 the “year of the women” – especially as I worked from a make-shift table, bouncing my toddler, while trying to angle my body to cover up the dirty laundry I forgot to move before I started the zoom call.
But in the midst of that chaos, women hit a pretty incredible milestone. As of May of 2020, for the first time, there was at least 1 female voice at the table in each of the largest, publicly traded companies in the United States. We did it folks. Every S&P 500 company has a female on their board of directors.
An average board has about 10 to 11 people on the board, so this week’s chart from the 2020 US Spencer Stuart Board Report is really encouraging. Women now actually tend to have 2 to 4 seats on the board. Not only is it a voice, but a voice with a bit of volume accumulating behind it. In fact, from May of 2019 to May of 2020, 47% of new board of director seats went to women. Friends, that’s almost equal weight!
Five years ago, Suzanne co-authored a report on the impact of women in the board room. I came to work at ThirtyNorth, in large part, because of what that work and the values of ThirtyNorth said about the firm’s dedication to the mission of “Bringing Together Money and Meaning”.
The paper, “The Relative Stock Performance of Gender-Diverse Boards”, sets the empirical reasoning behind our impact strategy, but it’s not my meaning. Don’t get me wrong, I strive for strong performance every single day, but it’s not the reason that I find the firm’s Women Impact Strategy meaningful. My meaning isn’t data based. I think numbers fail to tell the entire story on this one.
I just believe in something – and, in a world where it’s hard to hold on to beliefs, this is a place where I can continue to believe. I believe doing the right thing pays off in the end. I think listening to the voices around me makes me better. I believe that my experiences fail to give me the full picture – that I need to hear from people who are having different experiences. I know that if I only hear my same experience, mirrored back to me, I’ll fail to grow. I just can’t imagine that’s any different for a major corporation.
The companies we hold in this strategy created space for women and these women showed up, with their unique experiences, to add to the strength of the vision.
There is so much more work to be done – so many others whose voices aren’t being heard, but for me, the Women Impact Strategy is a little piece of meaning in a world that is struggling toward better. It’s a space where I can believe..
https://thirtynorth.com/wp-content/uploads/2017/04/LOGO-ThirtyNorth-Rev2017-1.png00Sarah Bomhoff, CFA, CIPMhttps://thirtynorth.com/wp-content/uploads/2017/04/LOGO-ThirtyNorth-Rev2017-1.pngSarah Bomhoff, CFA, CIPM2021-06-21 12:32:252021-06-21 15:01:54Thoughts in Charts: My Money and Meaning
In my last post, I concluded that I do not think Bitcoin is appropriate for 401 (k) plans at this time. Today, I will share some key risks associated with Bitcoin along with a few current, compelling arguments in favor of including it in portfolios, and my concluding thoughts on the matter.
Risks
First, Cryptoassets and Blockchain currently have several identified risks, and, in a world as nascent as Crypto, unidentified risks are sure to arise:
Technical issues to the Blockchain could allow security flaws.
Unidentified competitors could enter the market changing the landscape against current winners such as Bitcoin.
“Malicious Noneconomic Actors” could attempt to control a Blockchain network by amassing more computing power than the rest of the participants combined in what is known as a “51% attack.” This would cost incredible sums of money making it virtually uneconomic for anyone interested in profit. However, a noneconomic player like a state entity could possibly pull this off.
Future regulation could emerge.
Translating and updating the ledger requires significant energy resources, something that concerns governments, especially China at present.
Arguments for Portfolio Inclusion
What does this have to do with a 401(k) plan and why would I want to buy Bitcoin in my retirement plan? In a 401k Specialist article entitled “Does Bitcoin Belong In 401(k)s?”, John Sullivan recently interviewed Anthony Scaramucci and Brett S. Messing of SkyBridge Capital. Those two made a seemingly compelling argument based on the three keys to Bitcoin’s performance.
Scaramucci and Messing believe that because Bitcoin offers high returns over time in exchange for its high relative volatility and because it is uncorrelated to most, if not all, traditional asset classes, there is a place for a small allocation to Bitcoin in a 401(k) portfolio.
The thinking goes that a bust from a small portion of a portfolio has little to no impact on the portfolio overall, but a massive long-term outperformance could move the needle on performance. Messing points out that BlackRock recently “started to dabble” in Bitcoin apparently in their fixed income portfolios, presumably using a similar argument.
Other Problems
Ok, so investment professionals are making creative, compelling arguments in favor of including Bitcoin in a portfolio even in the 401(k) space. However, plan sponsors and advisors are held to fiduciary standards of care when offering investment options in plan lineups. Not to mention the current regulatory hurdles to offering Bitcoin to plan participants
A recent article in the The Wall Street Journal by Elaine Yu and Chong Koh Ping entitled, “China’s Latest Crackdown on Bitcoin, Other Cryptocurrencies Shakes Market” points out just how quickly fortunes can swing in Bitcoin especially when one of the key risks to its value comes into play. Whether what is going on now is regulation by China or the precursor to a “51% attack”, all you need to do is look at this chart to understand how fragile Bitcoin’s value is.
Conclusion
At this point, I do not believe Bitcoin is an appropriate investment option for a 401(k) plan. Even at 10+ years old, Bitcoin is a new asset, albeit one with an intriguing track record. ERISA Law as well as regulation by the SEC regulate the 401(k) space. I wonder if Bitcoin could withstand the necessary regulation that ERISA and the SEC would require to be able to be included in a 401(k) Plan lineup? For now, as an advisor, I would not recommend it. But, as they say, “never say never.
https://thirtynorth.com/wp-content/uploads/2017/04/LOGO-ThirtyNorth-Rev2017-1.png00Fritz Gomilahttps://thirtynorth.com/wp-content/uploads/2017/04/LOGO-ThirtyNorth-Rev2017-1.pngFritz Gomila2021-06-03 16:55:422021-06-03 16:55:42Thin(k) About Your 401(k) Plan
I have to admit, I may have been bitten by the Bitcoin bug. To be clear, I have not invested in Bitcoin because I am unconvinced the words invest and Bitcoin should be used in the same sentence, yet. However, my recent readings on the subject leave me intrigued. For this and my next post, I want to examine Bitcoin as an asset class and whether or not it is appropriate for a 401(k) Plan.
Bitcoin is a cryptoasset resulting from blockchain technology born from a decentralized, distributed database that is accessible to anyone. In essence the technology functions as a transaction ledger that anyone using it has access to review and verify its accuracy. This network has incredible potential, including three current and readily identifiable possibilities that have only just begun to be developed:
Lightening fast transaction settlement with very low costs available 24/7.
The Bitcoin “mined” in the process of creating the Blockchain network acts as a new store of value often compared to gold based on its inherent scarcity. The maximum number of Bitcoin that will ever be created is limited to 21 million and the provenance of each is never in doubt.
The potential for digitally recording contracts and thereby creating “programmable money.”
Bitcoin and blockchain are just beginning, but if we compare them to the Internet in 1990, Houghan and Lawant make a startling statement
“The internet clearly represented a new way to distribute information and could have major consequences, but moving from that to predicting that people would, for example, regularly use smartphones to rent out a stranger’s house rather than staying in a hotel is a whole different matter.”
Bitcoin’s performance has been characterized by high returns, high volatility and low correlation with traditional assets.
Bitcoin’s high returns are easy to document. If one had invested $10,000 in Bitcoin on July 17, 2010, on September 30, 2020 that investment would be worth $2.2 billion.
As illustrated in the chart below, the value of Bitcoin is incredibly volatile even though its volatility has decreased since 2011.
Bitcoin’s historical returns have been very uncorrelated with the returns of all other major assets making Bitcoin appear to be an effective diversifying asset for a portfolio.
Pretty interesting and maybe enticing too? But as I said at the start, I’m still unconvinced Bitcoin is appropriate for 401(k) Plans. In my next post “Should Bitcoin Be Offered in My 401(k)?”, I’ll show you how many are now arguing for including Bitcoin in a 401(k) portfolio, and why I don’t think it appropriate, yet. Until then…
https://thirtynorth.com/wp-content/uploads/2017/04/LOGO-ThirtyNorth-Rev2017-1.png00Fritz Gomilahttps://thirtynorth.com/wp-content/uploads/2017/04/LOGO-ThirtyNorth-Rev2017-1.pngFritz Gomila2021-06-01 15:00:452021-06-01 15:00:45Thin(k) About Your 401(k) Plan
This week’s chart illustrates why I encourage people to consider their retirement savings with the same weight as they consider aggressively paying off debt. The idea of living debt free is so catchy and liberating, but what if it’s costing you your financial freedom later in life?
The Forbes Advisor article, “Should You Pay Off Debt or Save For Retirement?” walks through a decision tree for how to prioritize your savings and debt decisions. It’s a great read, but I’d add one behavioral hack to your decision-making process: The Rule of 72.
One of the issues with deciding between paying down debt or saving for retirement is that you can’t predict the returns of the market. It’s pretty easy to calculate the interest that you owe over the life of the loan, but it’s hard to know what your investment will be worth later in life.
The Rule of 72 gives you a shortcut to help estimate how long it would take your investment today to double, given an assumed interest rate.
If you assume a rate of 5% then 72/5 = 14.4 years to double your money. If you assume 8%, then it would take 9 years to double your money.
Since you probably know how many years you have until retirement, the Rule of 72 can help you design an estimated range of probable values for your investment.
In the above example, if you have 48 years until retirement, a $10,000 investment given a fairly reasonable rate of return should have a value of between $40,000 to $160,000. In an extreme case, it could be as much as $2,560,000.
This type of table frames-up the impact of saving and gives you more information as you make your decision. If the loan interest you save by prepaying is far less than the gains suggested by the Rule of 72 table, it’s time to consider if “debt free” is really worth the cost.
The Small Business Jobs Act of 2010 modified by The American Taxpayer Relief Act of 2012 gave retirement plan sponsors the ability to offer in-plan Roth conversions. Additionally, plans that don’t currently offer the provision can add the option. An in-plan Roth conversion is a way to convert pre-tax savings to Roth savings.
Participants opting to do so must report the conversion amount as gross income on their tax return in the year of conversion and pay taxes due as a result. The Roth money then grows tax deferred and can be distributed tax free as long as the participant leaves the converted money in the Roth account for five years and has reached the age of 59 ½. This is a complex tax issue and anyone considering an in-plan Roth conversion should consult with their tax advisor.
Some of the reasons to consider an in-Plan Roth conversion are:
Expectation that tax rates will be the same or higher in the future
Taxes due can be paid from a source other than the retirement account
Desire to have a bucket of cash available tax free in retirement
Investing for the long-term, especially five-plus years to avoid penalty and taxes
If you expect your taxes to be lower in retirement, you don’t have cash available to pay taxes due at conversion or you will need access to the money in less than five years, this option may not be for you.
There are a few things to consider before you explore an in-plan Roth conversion. First, does your plan offer the option or intend to in the future? No need to consult your tax advisor if the answer is no. Second, make sure you fully understand the requirements for the money to be distributed tax free (five-year holding period and age 59 ½) or you may subject yourself to a 10% penalty tax and taxes due for early withdrawal.
However, given the current chatter about higher taxes in the future, more and more savers are interested in exploring the in-plan Roth conversion option. Vanguard provides a helpful table here, that explains in further detail the option. ThirtyNorth Investments does not give tax advise. You should consult your tax professional regarding in-plan Roth conversions.
It’s unsurprising that American workers love their retirement plans and don’t want them to change. The Investment Company Institute’s (ICI) recent research report, “American Views on Defined Contribution Plan Saving, 2020” confirms this fact in no uncertain terms. ICI has conducted this study for 13 years. Here are two key takeaways from the report.
First, American workers, who have a 401(k) plan or an IRA, like them and believe the accounts are instrumental in helping incentivize saving.
More than 90% of these workers agree that the plans simplified the saving process, helping them focus on the long term and
86% agreed that the tax treatment was a big reason they were saving. Almost all of these workers agreed that they should be able to choose and control their investments in the accounts. And
83% felt like retirement accounts could help them meet retirement goals.
Second, there’s a lot of talk in the political arena about altering retirement benefits to generate tax revenue, and workers are paying close attention to this. They strongly oppose changes to the tax advantages, contribution limits and removing control of investment decisions that come with 401(k) plans and IRAs:
87% of those saving via a 401(k) plan or IRA disagreed with the concept of the government taking away the tax advantage.
89% disagreed with the idea of reducing contribution limits. And
89% disagreed with the thought of giving away their ability to decide how to invest their money.
These results should clearly indicate to plan sponsors that they offer a benefit highly valued by their workers and that the workers gain financial security by receiving the benefit. The American retirement plan system is functioning well and workers do not want the benefit to change, especially when it is to their disadvantage. As my father used to say, “if it ain’t broke, don’t fix it.”
https://thirtynorth.com/wp-content/uploads/2017/04/LOGO-ThirtyNorth-Rev2017-1.png00Fritz Gomilahttps://thirtynorth.com/wp-content/uploads/2017/04/LOGO-ThirtyNorth-Rev2017-1.pngFritz Gomila2021-04-01 15:59:222021-04-01 17:07:02Thin(k) About Your 401(k) Plan: What A Great Benefit!
Thoughts in Charts: My Money and Meaning
I wouldn’t call 2020 the “year of the women” – especially as I worked from a make-shift table, bouncing my toddler, while trying to angle my body to cover up the dirty laundry I forgot to move before I started the zoom call.
But in the midst of that chaos, women hit a pretty incredible milestone. As of May of 2020, for the first time, there was at least 1 female voice at the table in each of the largest, publicly traded companies in the United States. We did it folks. Every S&P 500 company has a female on their board of directors.
An average board has about 10 to 11 people on the board, so this week’s chart from the 2020 US Spencer Stuart Board Report is really encouraging. Women now actually tend to have 2 to 4 seats on the board. Not only is it a voice, but a voice with a bit of volume accumulating behind it. In fact, from May of 2019 to May of 2020, 47% of new board of director seats went to women. Friends, that’s almost equal weight!
Five years ago, Suzanne co-authored a report on the impact of women in the board room. I came to work at ThirtyNorth, in large part, because of what that work and the values of ThirtyNorth said about the firm’s dedication to the mission of “Bringing Together Money and Meaning”.
The paper, “The Relative Stock Performance of Gender-Diverse Boards”, sets the empirical reasoning behind our impact strategy, but it’s not my meaning. Don’t get me wrong, I strive for strong performance every single day, but it’s not the reason that I find the firm’s Women Impact Strategy meaningful. My meaning isn’t data based. I think numbers fail to tell the entire story on this one.
I just believe in something – and, in a world where it’s hard to hold on to beliefs, this is a place where I can continue to believe. I believe doing the right thing pays off in the end. I think listening to the voices around me makes me better. I believe that my experiences fail to give me the full picture – that I need to hear from people who are having different experiences. I know that if I only hear my same experience, mirrored back to me, I’ll fail to grow. I just can’t imagine that’s any different for a major corporation.
The companies we hold in this strategy created space for women and these women showed up, with their unique experiences, to add to the strength of the vision.
There is so much more work to be done – so many others whose voices aren’t being heard, but for me, the Women Impact Strategy is a little piece of meaning in a world that is struggling toward better. It’s a space where I can believe..
For disclosures, please click here.
Thin(k) About Your 401(k) Plan
Should Bitcoin Be Offered in My 401(k) Plan?
In my last post, I concluded that I do not think Bitcoin is appropriate for 401 (k) plans at this time. Today, I will share some key risks associated with Bitcoin along with a few current, compelling arguments in favor of including it in portfolios, and my concluding thoughts on the matter.
Risks
First, Cryptoassets and Blockchain currently have several identified risks, and, in a world as nascent as Crypto, unidentified risks are sure to arise:
Arguments for Portfolio Inclusion
What does this have to do with a 401(k) plan and why would I want to buy Bitcoin in my retirement plan? In a 401k Specialist article entitled “Does Bitcoin Belong In 401(k)s?”, John Sullivan recently interviewed Anthony Scaramucci and Brett S. Messing of SkyBridge Capital. Those two made a seemingly compelling argument based on the three keys to Bitcoin’s performance.
Scaramucci and Messing believe that because Bitcoin offers high returns over time in exchange for its high relative volatility and because it is uncorrelated to most, if not all, traditional asset classes, there is a place for a small allocation to Bitcoin in a 401(k) portfolio.
The thinking goes that a bust from a small portion of a portfolio has little to no impact on the portfolio overall, but a massive long-term outperformance could move the needle on performance. Messing points out that BlackRock recently “started to dabble” in Bitcoin apparently in their fixed income portfolios, presumably using a similar argument.
Other Problems
Ok, so investment professionals are making creative, compelling arguments in favor of including Bitcoin in a portfolio even in the 401(k) space. However, plan sponsors and advisors are held to fiduciary standards of care when offering investment options in plan lineups. Not to mention the current regulatory hurdles to offering Bitcoin to plan participants
A recent article in the The Wall Street Journal by Elaine Yu and Chong Koh Ping entitled, “China’s Latest Crackdown on Bitcoin, Other Cryptocurrencies Shakes Market” points out just how quickly fortunes can swing in Bitcoin especially when one of the key risks to its value comes into play. Whether what is going on now is regulation by China or the precursor to a “51% attack”, all you need to do is look at this chart to understand how fragile Bitcoin’s value is.
Conclusion
At this point, I do not believe Bitcoin is an appropriate investment option for a 401(k) plan. Even at 10+ years old, Bitcoin is a new asset, albeit one with an intriguing track record. ERISA Law as well as regulation by the SEC regulate the 401(k) space. I wonder if Bitcoin could withstand the necessary regulation that ERISA and the SEC would require to be able to be included in a 401(k) Plan lineup? For now, as an advisor, I would not recommend it. But, as they say, “never say never.
For disclosures, please click here.
Thin(k) About Your 401(k) Plan
What Is Bitcoin and How Does It Work?
I have to admit, I may have been bitten by the Bitcoin bug. To be clear, I have not invested in Bitcoin because I am unconvinced the words invest and Bitcoin should be used in the same sentence, yet. However, my recent readings on the subject leave me intrigued. For this and my next post, I want to examine Bitcoin as an asset class and whether or not it is appropriate for a 401(k) Plan.
First, anyone interested in learning about Bitcoin should read Matt Houghan’s and David Lawant’s Brief entitled: “Cryptoassets: The Guide to Bitcoin, Blockchain, and Cryptocurrency for Investment Professionals” published by The CFA Reasearch Foundation in 2021. Although it’s 50 pages, I found it hard to put down and easy to understand. A few key takeaways:
“The internet clearly represented a new way to distribute information and could have major consequences, but moving from that to predicting that people would, for example, regularly use smartphones to rent out a stranger’s house rather than staying in a hotel is a whole different matter.”
Pretty interesting and maybe enticing too? But as I said at the start, I’m still unconvinced Bitcoin is appropriate for 401(k) Plans. In my next post “Should Bitcoin Be Offered in My 401(k)?”, I’ll show you how many are now arguing for including Bitcoin in a 401(k) portfolio, and why I don’t think it appropriate, yet. Until then…
For disclosures, please click here.
Thoughts in Charts: Retirement Ready vs Debt Free
This week’s chart illustrates why I encourage people to consider their retirement savings with the same weight as they consider aggressively paying off debt. The idea of living debt free is so catchy and liberating, but what if it’s costing you your financial freedom later in life?
The Forbes Advisor article, “Should You Pay Off Debt or Save For Retirement?” walks through a decision tree for how to prioritize your savings and debt decisions. It’s a great read, but I’d add one behavioral hack to your decision-making process: The Rule of 72.
One of the issues with deciding between paying down debt or saving for retirement is that you can’t predict the returns of the market. It’s pretty easy to calculate the interest that you owe over the life of the loan, but it’s hard to know what your investment will be worth later in life.
The Rule of 72 gives you a shortcut to help estimate how long it would take your investment today to double, given an assumed interest rate.
If you assume a rate of 5% then 72/5 = 14.4 years to double your money. If you assume 8%, then it would take 9 years to double your money.
Since you probably know how many years you have until retirement, the Rule of 72 can help you design an estimated range of probable values for your investment.
In the above example, if you have 48 years until retirement, a $10,000 investment given a fairly reasonable rate of return should have a value of between $40,000 to $160,000. In an extreme case, it could be as much as $2,560,000.
This type of table frames-up the impact of saving and gives you more information as you make your decision. If the loan interest you save by prepaying is far less than the gains suggested by the Rule of 72 table, it’s time to consider if “debt free” is really worth the cost.
For disclosures, please click here.
Thin(k) About Your 401(k) Plan: In-Plan Roth Conversion
The Small Business Jobs Act of 2010 modified by The American Taxpayer Relief Act of 2012 gave retirement plan sponsors the ability to offer in-plan Roth conversions. Additionally, plans that don’t currently offer the provision can add the option. An in-plan Roth conversion is a way to convert pre-tax savings to Roth savings.
Participants opting to do so must report the conversion amount as gross income on their tax return in the year of conversion and pay taxes due as a result. The Roth money then grows tax deferred and can be distributed tax free as long as the participant leaves the converted money in the Roth account for five years and has reached the age of 59 ½. This is a complex tax issue and anyone considering an in-plan Roth conversion should consult with their tax advisor.
Some of the reasons to consider an in-Plan Roth conversion are:
If you expect your taxes to be lower in retirement, you don’t have cash available to pay taxes due at conversion or you will need access to the money in less than five years, this option may not be for you.
There are a few things to consider before you explore an in-plan Roth conversion. First, does your plan offer the option or intend to in the future? No need to consult your tax advisor if the answer is no. Second, make sure you fully understand the requirements for the money to be distributed tax free (five-year holding period and age 59 ½) or you may subject yourself to a 10% penalty tax and taxes due for early withdrawal.
However, given the current chatter about higher taxes in the future, more and more savers are interested in exploring the in-plan Roth conversion option. Vanguard provides a helpful table here, that explains in further detail the option. ThirtyNorth Investments does not give tax advise. You should consult your tax professional regarding in-plan Roth conversions.
For disclosures, please click here.
Thin(k) About Your 401(k) Plan: What A Great Benefit!
It’s unsurprising that American workers love their retirement plans and don’t want them to change. The Investment Company Institute’s (ICI) recent research report, “American Views on Defined Contribution Plan Saving, 2020” confirms this fact in no uncertain terms. ICI has conducted this study for 13 years. Here are two key takeaways from the report.
First, American workers, who have a 401(k) plan or an IRA, like them and believe the accounts are instrumental in helping incentivize saving.
Second, there’s a lot of talk in the political arena about altering retirement benefits to generate tax revenue, and workers are paying close attention to this. They strongly oppose changes to the tax advantages, contribution limits and removing control of investment decisions that come with 401(k) plans and IRAs:
These results should clearly indicate to plan sponsors that they offer a benefit highly valued by their workers and that the workers gain financial security by receiving the benefit. The American retirement plan system is functioning well and workers do not want the benefit to change, especially when it is to their disadvantage. As my father used to say, “if it ain’t broke, don’t fix it.”
For disclosures, please click here.