Articles on Wealth Management Topics

“You make most of your money in a bear market, you just don’t realize it at the time.” This statement must seem like a paradox when your portfolio balance is declining at an alarming rate on a weekly basis. But "money is indeed made" in a variety of ways during financial market upheavals like this one. And doing so doesn't require any particular market-timing skills or short-selling prowess, but it does require a disciplined and consistent approach to portfolio management, a focus on the longer term, and a certain amount of courage and conviction.

At the risk of overdoing it with client communications, I'm feeling that developments in the financial markets in the past week warrant another outreach to all of you, and in particular to those of you who weren't Five Seasons clients during the October 2007 - March 2009 bear market. In the interest of brevity, this missive will take the form of a list of talking points that have occurred to me, or that have cropped up in one-on-one correspondence with clients, this week. Here's hoping the following will calm nerves, provide perspective, satisfy curiosity, or simply help you to pass time while "social distancing":

Despite the confidence exuded by the talking heads on financial news networks like CNBC and Bloomberg TV, it's always a tenuous business to try to assign big stock market moves (down or up) to one specific root cause. And frankly it's not a particularly productive exercise to try to do so, other than for the benefit of TV ratings. That being said, in my humble opinion, while the coronavirus was certainly the catalyst for, and is still an ongoing contributing factor to, this stock market correction or bear market, there are several other factors at work:

The most widely-followed U.S. stock market indices now all sit at or near record highs. One of the factors often given credit for our stock market's resilient performance is the recent strength in economic indicators. But should a strong economy lead us to believe that the outlook for future stock market returns is rosy? The indisputable answer is, surprisingly, "No".

Financial advisors vary widely in the business models in which they operate and in the standards of care that they owe to clients. These factors determine the quality of advice provided, and of products recommended, by any given financial advisor as much as his/her education, experience, and professional designations.

Now there are almost 1800 ETF's being traded in the U.S., a remarkable number considering that there are less than 4000 companies listed on exchanges here. To distinguish themselves from the competition and to attract investment assets, these fund sponsors have stopped at nothing to slice and dice the financial markets in innovative, and in many cases just plain silly, ways.

In the last installment of Articles on Wealth Management Topics, we discussed academic research on different ways to estimate the magnitude of future stock market returns. As a refresher, the worst of the ways studied was to extrapolate future returns from past returns. Nearly as ineffective is to base estimates of future returns on surveys of individual and institutional investors.

Returns in financial markets are often cyclical. That is, multi-year periods during which asset classes or investing styles or mutual fund sectors succeed in generating above-average returns are usually followed by multi-year periods of disappointing returns, and vice versa. Since this market behavior is a key tenet on which our contrarian investment philosophy rests, let's explore the academic research supporting it and the ramifications for successful long-term investing.

One of the major factors to consider when deciding whether to rollover a retirement plan account to an IRA is investment flexibility. An IRA typically allows its owner almost unlimited investment flexibility. In contrast, a 401k, 403b or 457 retirement plan account-holder is constrained to choose from among the menu of investment options made available by the plan's sponsor and service provider.

Target-date mutual funds have been attracting more and more assets during the last decade, primarily as a result of their burgeoning use in 401k and 403b plans. Plan sponsors and participants alike are drawn to the simplicity of TDF's, but as is often the case, the easy solution is not the best one. The weaknesses of target-date funds stem from three words: lack of customization.