Six Questions Being Asked

It’s been a busy year at Strategic Wealth Partners, but a fulfilling year as well. I have a few different responsibilities around the office (of course, these days, “office” is more of a figurative term than a literal one – thanks a lot 2020), but my favorite thing I do is to work with our clients. I look forward to client calls, and I still find myself energized even after a full day of Zoom meetings. Some families I have worked with for almost nine years, and others I just started with over the past few weeks. Our clients have diverse backgrounds, unique life experiences, and distinct financial positions. And while every client situation is different, I often find myself answering virtually identical questions. Not too surprisingly, everyone can have similar concerns! I thought it would be helpful to list six of the questions that I am frequently asked, and provide some brief thoughts and answers to these questions.

#1 – Are we still on track?

This is a common question, and probably the most important one that I get asked. One of our central responsibilities as advisors is to let people know if they are going to be ok. This is a big responsibility, one that we fully embrace and take seriously.

Typically this isn’t a question that I can give a blanket “yes” or “no” answer to because no two families or businesses have the exact situation. There is nuance to each relationship, and to some degree, everyone has different short-term needs and long-term goals.

If you found yourself worried about your finances throughout this year, that’s normal. Most of us felt this way, including me! My colleague Tom Buhrmann wrote a great article called “Especially Now, Let’s Focus on What Matters Most.” Tom encourages us to focus on the small intersection of “things that matter” and “things you can control.” This is what will help you stay on track, even in these uncertain times.

Importantly, if your own personal situation hasn’t changed, then you are probably still on track. Keep in mind, though, while 2021 may be a better year from a health and lifestyle perspective, it doesn’t mean it will be another positive year for the market. And if the market goes down next year or over the next few years, that doesn’t mean you are off track.

#2 – Why has the stock market done so well?

Investing can be counterintuitive. To make matters worse, the market is usually hard to predict. And the icing on the cake is that the market will always find new ways to shock us. Despite everything we have been through, the stock market (according to most commonly used benchmarks) is positive for the year. There are a few reasons I believe this has occurred:

  • Perhaps liquidity in the market matters more than the underlying economic conditions. This year the Federal Reserve stepped in to ensure that a liquidity crisis did not happen. Additionally, Fiscal stimulus from the Federal Government brought not only peace of mind, but financial support to U.S. citizens that needed it the most. Consumer spending makes up about 70% of the U.S. economy, and this money allowed people to continue to spend, helping to lift the stock market.
  • The pandemic’s economic hardships have led to a disproportionate (in many cases devastating) impact on small businesses. The U.S. stock market actually represents just a small number of businesses in America. That said, this “small number” of companies are actually the biggest and most influential companies we know. The nature of capitalization-weighted markets (like the S&P 500) means the largest companies will have the greatest impact on performance.
  • Lower interest rates can boost the stock market. In certain situations, low-interest rates may cause investors to move money from low-yielding bonds into stocks. Big disclaimer here – this is not usually the advice that we give our clients (see my point number one above and be ready for point number four below). But many investors who don’t see income opportunity with safer bond investments will redistribute their investable assets to equities.
  • The capital markets remain extremely accommodating with the lower interest rates. Borrowing costs or “interest expenses” are at all-time lows. With these lower costs, consumers and businesses have an increased ability to spend, which in turn can boost the stock market.

#3 – Can the stock market continue to do well?

From where we find ourselves today, the market could go up just easily as it could go down. In fact, this is probably the case at any point in time.

There are a lot of challenges to being a successful investor. One of the biggest truths to come to terms with is that there isn’t always a catalyst for the markets to move. Sometimes the main reason that the stock market drops is because it just went through a large rise. And vice-versa. Along these lines, while it may seem like the stock market is at a point where it should drop, this won’t necessarily be the case.

While the reasons outlined in question number two above could, on their own, explain why the stock market could continue to do well, there are a handful of other reasons as well.

  • The economic changes we have experienced in 2020 are different from past economic hardships because there is nothing structurally wrong with our economy (unlike 2008, when we had a housing bubble).
  • This is hard to believe, but household balance sheets have improved this year. As I described in question number two above, the household interest expense is lower with lower interest rates.
  • Consumers and businesses have pent up demand, and the vaccine is coming. I believe investor sentiment is a real thing and could drive markets higher.

Please note that I am not saying with certainty that the stock market will continue to rise, nor am I predicting this to be the case. I’m just saying it could happen, and there are reasons that support this thought.

#4 – Should we make any changes to our portfolio?

When I am asked this question, I usually respond with three questions:

  1. Has your time horizon, risk profile, or circumstances meaningfully changed enough to warrant a change?
  2. Will your lifestyle be impacted in a meaningful way if stocks continue to fall?
  3. Do you need to use the money you have invested in stocks for spending purposes in the next three years?

See what I did there?

Notice how none of these questions have anything to do with a market “forecast.” If you want to reduce risk in your portfolio because you think the stock market is too hot or because you believe you can accurately predict future conditions, I would respond with a resounding “no.”

My favorite line from my colleague Andrew Denenberg’s article, “Was This Time Actually Different?” is, “You (yes, you) are terrible at timing the market. Don’t worry, everyone is — including investment professionals.  Resist the urge to act on your personal viewpoints of the market.  You are probably wrong.  And even if you are right, you’re unlikely to implement it properly enough to profit.” The line from this article may come off as a bit harsh, but it is so true.

This doesn’t mean that we should never make changes to a portfolio. Quite the opposite, in fact. We always work with clients on making changes to their portfolio if their situation, needs, or goals change, not at all based on what the market has done or may do.

#5 – Are there any year-end tax planning items I should consider?

For many of our clients, the answer to this question is “yes.” My colleague Adam Rudolph wrote a helpful article, Five Year-End Tax Strategies for 2020, on this topic.  Adam explains that year-end tax planning feels especially important this year.  The topics that Adam touched on are:

  • Reduce and defer capital gains, where possible
  • Take advantage of strategic gifting – either to family or charity
  • Consider a Roth IRA conversion
  • Review the contributions you are making to your retirement plans
  • Contributions to college savings plans

Tax planning is very situation dependent, and it’s not a topic where any sweeping generalizations can be made. You may want to reach out to your SWP advisor to see if there is any planning that we can help you with before year-end.

#6 – Are you still working in your basement?

I am saving the best for last here. Honestly, this is the single question that I have been asked the most. I smile every time I hear it.

Yes, I have been working in my basement for the past 8.5 months. Could I use some natural light? Yes, that wouldn’t hurt. But it’s quiet down here (yes, I am literally writing this from my basement), the temperature is to my liking, and the view from my desk is a wall of artwork done by my two daughters. See the picture below for proof! Basement picture

In addition to asking whether I am still working in my basement, I am also asked if I am able to be productive down here. Easy answer – Absolutely.  In April, I accepted this new normal, but now, I embrace it. I miss sitting across a table from clients, but I now find Zoom and phone calls to be quite productive. On Zoom, I can share my screen when helpful, and over the phone, I can conference in a colleague at a moment’s notice.

Trust me; I’m looking forward to being back in the office. I can’t wait to see clients in person again – either at our office or around their kitchen table.

I don’t like to make predictions. Do not ask me what the stock market is going to do over the next few months. However, I am comfortable predicting that the way we engage with clients in a post-vaccine world will be different. I will not be down in my basement, but I may be hosting Zoom meetings from my desk in the office. We will have to wait and see on that…just hopefully not too much longer!

In conclusion, as we enter the holiday season, I realize that I have a lot to be thankful for. I have a loving, healthy family with whom I am able to spend a lot of time with. Things are also really good with work. Our SWP team always has several projects that we are working on, and as I mentioned at the start of this piece, there is plenty to keep us busy.  But for me, and all of my colleagues, it comes back to the work we do with our clients. I love how people with such different backgrounds could have the same questions or concerns. It is part of what makes this job fun and rewarding.

If you have any questions of your own that I did not discuss above, please feel free to reach out to your SWP advisor. We are always happy to help!

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This article contains general information that is not suitable for everyone. The information contained herein should not be constructed as personalized investment advice. Reading or utilizing this information does not create an advisory relationship. An advisory relationship can be established only after the following two events have been completed (1) our thorough review with you of all the relevant facts pertaining to a potential engagement; and (2) the execution of a Client Advisory Agreement. There is no guarantee that the views and opinions expressed in this article will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

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