One of my favorite investment reads is The Route to Performance by Oaktree Capital’s Howard Marks. Marks starts by disputing the argument that more risk means more return, “If you want to be in the top 5% of money managers, you have to be willing to be in the bottom 5%, too.” Instead of outperformance, this philosophy can lead to a “long-term record which is characterized by volatility and mediocrity.” He then recalled a meeting he had with a pension plan director:
“We have never had a year below the 47th percentile over that period or, until 1990, above the 27th percentile. As a result, we are in the fourth percentile for the fourteen year period as a whole.”
Instead of taking big risks, the pension plan director aimed for consistent performance, resulting in stellar long-term performance as peers self-destructed.
The Howard Marks note was written in 1990, but is still relevant today. The SPIVA Persistence Scorecard further debunks the idea of an investment strategy placing in the top 10 (or even 50!) percent of its peer group every year. Investment manager selection isn’t about picking what fund will outperform in a calendar year, it’s about finding consistent performance. For most asset classes, that means buying the index.
It’s clear that 2018 will not be a repeat of 2017. Low volatility, a steady march up and to the right, and a general disregard for headline risk were last year’s calling cards. 2018 seems jittery by comparison, but is actually a more normal market. Historically, drawdowns have been slower and deeper, but maybe this year’s sharp drops and rebounds Continue Reading →
The stock market fell back to earth at the end of February as CNBC trotted out its ‘Markets in Turmoil’ chyron. For all its gyrations, as of the end of February the S&P 500 was up about 1% for the year – hardly turmoil territory. Continue Reading →
The S&P 500 was up 5.7% in January, after a 20%+ year in 2017. But instead of enjoying this pleasant surprise, everyone seemed to be wondering if things were going too well. Market volatility is historically low. When will it snap back? The Fed is raising rates. What if this shocks the markets? Political volatility is everywhere. Won’t this volatility eventually bleed into the markets? Continue Reading →
Experts predicted that 2017 would be a difficult year for investors. Looking back, they are now calling it an easy year. All investors had to do was stay invested, but how ‘easy’ was that? Half of a year-end Barrons roundtable of investment experts predicted S&P 500 returns of 5% or less. News headlines were dominated by tragedy (multiple natural disasters) and political uncertainty.
Everything went according to plan. Now what? After a lifetime of saving, it can be difficult to justify spending on things that we once considered frivolous.
Meir Statman recently wrote a paper for the Financial Planning Association titled “Are Your Clients Not Spending Enough in Retirement?” that outlines an interesting conundrum for many retirees. Diligent savers sometimes find it difficult to switch from the wealth accumulation phase of life to the spending phase. The widely accepted narrative that there is a retirement crisis in the United States influences these savers to prioritize penny-pinching over their own happiness. Statman calls this “self-induced poverty”.
We’re not suggesting that you should go out and buy a solid gold toilet, but it is important not to lose track of the purpose of your personal wealth accumulation. If it was for a comfortable retirement, are you actively allocating to that? A financial plan is not necessarily a function to maximize wealth. It should also consider how you aim to enjoy that wealth through lifestyle, legacy, and peace of mind.
The Social Security Act was signed into law by President Roosevelt on August 14, 1935, as a social insurance net to protect the elderly from old age, poverty and unemployment. Today, more than 93% of American workers pay into and are covered by Social Security, and the total benefits paid out in 2017 are projected to be nearly $1 trillion dollars. Social security remains a critical safety net for low income Americans, as well as an additional income source for middle-income and wealthy retirees. But applying and selecting benefits can be confusing to many and the viability of the system itself is a source of much discussion as things are very different today than they were back in 1935.
The ghosts and goblins of Halloween are in the rear-view mirror so what keeps us up at night now? Are macroeconomic conditions a concern? What about political discord at home and abroad? Maybe the dreaded Black Swan event is our bogeyman? Our true fears are a bit more down to earth than these.
Big picture news stories may dominate the media, but our clients’ portfolios are not dependent on the outcomes of these events. While it’s difficult to predict what will happen, it’s impossible to predict how the markets will react to what will happen. The news cycle is beyond our control.
Wealth management is often associated with the word “No”. Got any hot stock tips? No. Should we be investing like that guy on TV? No and a speedboat is not an investment. Being negative all the time is no fun for us either, so here are some things to be positive about.
In the last 10 years, we experienced the worst stock market decline since the Great Depression, but an investment in the S&P 500 at the market top still would have doubled your money. Since the financial crisis, experts have predicted an extended period of low single-digit returns for equities. Folks that listened to these experts missed out on a huge bull run.
Domestic equity valuations are elevated, but by much less than is commonly reported. The cyclically adjusted price/earnings (CAPE) ratio is the most cited example of rich valuations with today’s CAPE about 80% higher than its historic average. That average goes back to 1881, though, and using it as a timing device would have kept you out of the stock market since 1994. Comparing today’s CAPE to the average over the last 20 years, however, shows valuations only 12% higher than average. Again, this isn’t a signal to buy or sell stocks, but it’s a reminder that it’s never as bad as they say on TV.
It has been nearly 18 months since we recapitalized Fairway Wealth Management, buying out our outside shareholder and making the firm 100% employee-owned. It’s been a positive stretch for our clients, with investment portfolios generally up nicely. And it’s been a positive stretch here, as we’ve continued to grow and expand our team and services. As such, I wanted to send you a brief update on some recent activity here at Fairway:
We’ve recently hired two new employees:
Franco DiLiberto joined us in August as an Associate Wealth Manager. Franco, a Baldwin Wallace University graduate and CPA, spent the first three years of his career as a tax advisor with a regional public accounting firm. He will be helping support a number of client relationships while starting to work on his CFP designation.
Sarah Romanini joined us in June as our receptionist, office manager, and client service associate, replacing Erica Robinson who moved to Texas with her family. While we will all miss Erica, we are excited to have Sarah aboard. A graduate of John Carroll University, Sarah spent the first 6 years of her career in social work, then spent the previous 5+ years with a private equity firm, serving as an executive assistant and office manager.
In other employees news:
Chris Martin passed the Certified Financial Planner (CFP) exam and is now officially a CFP. Congratulations Chris!
Laura Reifschneider has been accepted into the executive MBA program at Baldwin Wallace University.
Dina Leader has completed the education and certification requirements to reinstitute her CPA license.
In the community:
Kristen Kuzma recently served as the Pro-Bono Director of the Cleveland chapter of the Financial Planning Association (FPA).
Korby Collins is in her fourth year on the board and finance committee of the West Side Catholic Center, an organization that assists those in need with food, clothing, shelter, and advocacy.
Fairway will be an upcoming sponsor of the Northeast Ohio Polycystic Kidney Walk, an organization that supports Polycystic Kidney Disease, and RhizoKids Night at the Races, an organization that supports Rhizomelic Chondrodysplasia Punctata (RCDP). These are two organizations that are near and dear to Fairway employees Matt Garrott and Chris Martin and their respective families.
Fairway also sponsored two events over the past summer, Moving Day Cleveland for the Parkinson’s Foundation and the West Side Catholic Center’s Pancake Run.
Fairway now serves nearly 200 clients, residing in 22 different states, with approximately $1.3B of regulatory assets under management.
We have recently rolled out a “Next-Gen” investment advisory service, targeted at the children/grandchildren of our clients that may not meet our normal account minimums yet, but that have started to accumulate some wealth and would benefit for our independent and planning-focused approach. Please let us know if this service is something you’d like to know more about.
Fairway, along with our partners Charles Schwab and Black Diamond, continue to introduce new technology tools. Tools are there for electronic check deposits, online account openings and wire transfers, consolidated portfolio access and performance monitoring, an electronic document storage portal, and more. If you are interested in learning more, contact your advisor or reach out to Maria Hinton and her operations team.
As we continue to expand our team and as our employees get more and more experience with us, we further increase our capacity to serve additional like-minded clients. We remain open to accepting new client opportunities and most of our new client growth comes directly from introductions from our existing clients and our close advisory relationships. So we want to thank you for your continued trust and support and we wish all of you a prosperous and healthy conclusion to 2017 and beyond.