Why Choose Zelus Wealth Management? Unlock Your Financial Future: Experience Comprehensive Financial Planning and Asset Management
Unlock Your Financial Future: Experience Comprehensive Financial Planning with Zelus Wealth Management
Are you seeking a more effective approach to growing and safeguarding your wealth? At Zelus Wealth Management, we understand that each individual's financial journey is unique. As a Registered Investment Advisor (RIA) and a fiduciary, our team is committed to providing customized wealth management solutions tailored to your specific needs and goals.
Why choose Zelus Wealth Management?
Fiduciary Commitment: As an RIA and fiduciary, we are legally bound to act in your best interest, ensuring that you receive transparent, objective, and unbiased advice.
Comprehensive Financial Planning: Our holistic approach addresses all aspects of your financial life, including retirement planning, tax strategies, estate planning, and risk management. We work closely with you to develop a personalized plan that aligns with your values and objectives.
Customized Portfolios: Unlike many large firms that offer off-the-shelf investment solutions, we create bespoke portfolios tailored to your specific goals and risk tolerance. Our team carefully selects investments that align with your unique financial situation, ensuring optimal growth and risk management.
Expertise: Our team possesses the knowledge and skills to help you navigate the complexities of the financial world, ensuring that your investments align with your objectives.
Take the first step towards securing your financial future by partnering with Zelus Wealth Management. Contact us today to schedule a complimentary consultation and discover the difference personalized, comprehensive financial planning can make in your life. Visit the Contact US tab to take the next step!
Navigating the Banking Crisis: A Silver Lining for Savvy Investors
The recent banking crisis involving Credit Suisse and Silicon Valley Bank has been making headlines, causing concern among investors and the general public alike. Despite the challenges these institutions are facing, there is a silver lining for those seeking investment opportunities. In this blog post, we will briefly explain the current crisis and discuss why now might be a good time to consider buying stocks at discounted prices.
A Brief Overview of the Banking Crisis
Credit Suisse and Silicon Valley Bank have been facing a difficult situation due to a combination of factors, including overexposure to high-risk investments, inadequate risk management practices, and regulatory lapses. These issues have led to significant losses for the banks, affecting their financial stability and sending ripples throughout the financial markets.
The Silver Lining: Buying Stocks at a Discount
Attractive valuations
As a result of the banking crisis, stock markets have experienced increased volatility and downward pressure on stock prices. This has created an opportunity for investors to potentially buy stocks at lower valuations than they might have been able to otherwise. Some fundamentally strong companies have seen their stock prices drop due to the overall market sentiment, offering attractive entry points for long-term investors.
Diversification benefits
With the uncertainty surrounding the banking sector, it's more important than ever for investors to maintain a diversified portfolio. Investing in a range of stocks across various sectors can help mitigate the impact of the current crisis on your investment portfolio. This approach can help reduce the risk associated with overexposure to any single industry, such as the banking sector.
2. Long-term growth potential
Despite the current challenges, many industries and companies continue to offer strong long-term growth prospects. As a long-term investor, it's crucial to focus on the fundamentals of the businesses you're investing in and their ability to grow and generate profits over time. By taking advantage of the current market conditions and investing in quality stocks at discounted prices, you can potentially benefit from the long-term growth of these companies.
3. Reassurance and Moving Forward
It's important to remember that market fluctuations are a natural part of the investment landscape. While the banking crisis involving Credit Suisse and Silicon Valley Bank has created uncertainty and volatility in the markets, it also presents opportunities for savvy investors to buy stocks at discounted prices.
By focusing on the fundamentals of the businesses you're investing in and maintaining a diversified portfolio, you can navigate these challenging times and potentially benefit from the long-term growth potential of quality stocks. As always, it's crucial to consult with a professional financial advisor before making any investment decisions, ensuring that your choices align with your personal risk tolerance and financial goals.
Stocks Just Had the Worst Start In 50 Years, Now What?
With the market taking a turn for the worse in the first half of the year and the S&P tumbling more than 20%, where do we go from here? This market has been a tricky one. Markets come and go in cycles, the big kicker with this market is we have seen a decline in the bond market, generally thought of as a hedge for equity or stock exposure, like never before. With that being said, now investors are faced with a decision that defies what human nature tells us to do; buy.
When we go into a store, we often see things on the sale rack and immediately our interest in the item goes up, simply because it’s on sale. Strangely enough, our emotions with the market tend to be the opposite. The average investor tends to buy at market peaks and sell when the market is down. This obviously is what separates making vs losing money in the market.
Our goal shouldn’t be to time the market. As long-term investors, buying reputable companies stock’ is a strategy that defeats trying to time the market. However, we are now presented with a buying opportunity that will price in the winners of the next bull market, and the time is now to take advantage of such discount in the market. Whether or not we are at the bottom, which we believe we are near, is really not as relevant as relevant as the ability to buy undervalued companies who are still showing strong profits in a contracting first half of the year market.
A big emphasis we want to make is this one, when in doubt, zoom out. Over the short term, a market decline feels like a big loss. Over the long term, however, its just a bump in the road, a fruitful road at that.
-Colin Feller
Inflation, Gas Prices and Ukraine: Where We See the Market Going in 2022
As I’m sure most of you are aware, the market has taken a beating in the last six months. It’s hard to be unaware, with gas prices creeping up on $5 a gallon in Florida over the past few weeks, and while the current administration would love for us to believe that this is two countries in Eastern Europe’s doing, that’s not exactly the case.
With 40% of all the money ever printed in the United States having been printed in the last 18 months, yes, you read that right. 40% of all the money EVER printed, including bills out of circulation, it is hardly a supply issue that gas is high, and your groceries cost about 17% higher this year as they did the same time last year, via real inflation numbers. While the CPI index says inflation was about 7%, this is also not the case either, when the governing body is allowed to change the variables that go into the equation to calculate inflation, it’s not difficult to get a more desirable outcome than is the case.
So where do we see the market going in 2022? While I won’t pretend to be a geopolitical expert, it’s hard to say that Russia is feeling any kind of real heat from the U.S. right now, and while sanctions seem to be doing little to sway them, a glimmer of hope of war in Europe not becoming war at home is how poor the Russian military has looked on the world stage. With Ukrainian civilians giving the worlds 2nd or 3rd ‘superpower’ more than they can handle, it is hopeful that the kremlin and Ukraine will reach a diplomatic solution.
Since the market has already seen a selloff of sorts, in particular tech, we are viewing the current market state as a steep discount for a potential swing back to the green in the remainder of 2022. With the situation in Europe, it is unlikely that the Fed will be as aggressive as previously thought with interest rates, and this should relieve some tension on the broad market. While we aren’t at April 2020 lows, current market levels offer a great entry point into the market. While timing the market is impossible, we often hear “isn’t the market at the top?” While this doesn’t really matter in the long term, especially over a 5–10-year period, it is always nice to buy things ‘on sale.’
With the U.S. banning Russian energy imports, it’s very likely that this slack will have to be made up by domestic oil companies, offering another solid opportunity in a sector that has seen a strong selloff in the last 5 years. While human nature makes us want to buy in when the market is high and we hear of everyone making money, and stay away when it’s a little lower, smart investing says we should do the opposite. With inflation at all-time highs, our advice is to take the discounts and get invested In the market, because any cash you have sitting in the bank is currently losing about 10% of its purchasing power.
-Colin Feller
Zelus Wealth Management to Offer 401(k) Management
At Zelus, we strive to continually evolve and stay at the front of technology and advice, and today, those two merge as we roll out our newest service, Advisor Managed Qualified Retirement Plans.
Zelus will now be able to actively manage clients 401(k)s, 403(b), TSPs, and any other qualified plan or held away account, all without making any changes to the structure of your plan. This will allow clients to maximize growth and ensure all of their accounts are working towards the same goal, all without taking any funds out of their employer sponsored plans. Through this process, our clients will still be able to contribute and get employer match, and rest assured that their qualified plans are working towards the same goal as their other accounts, all at the click of the button.
Often, 401(k)s and other qualified plans, such as 403(b)s and Thrift Savings Plans are the foundation a client builds upon for retirement. There have been several studies done regarding advisor managed plans vs self directed plans, and assuming a $100,000 contribution over 20 years, the net benefit after fees to the client is roughly $240,000, which is demonstrated below.
We are excited to be able to offer another service to our clients that will ensure that they are always getting top tier planning and investment advice, and ensuring they live comfortably in retirement. You can find out more at zeluswealth.com/401k
New Subscription Service Details
Last week, we announced our new pilot program to help young people get the advice they need, regardless of the assets they can bring to the table. All of the services we offer to large accounts will be available to you with no exception, in a new and financially efficient subscription service format.
Today, we want to talk about some of the key features of this program, and what you can expect from us while using it.
· Investment management
o We made a point in our video that this feature is not required, but it is the core of what we do. We have been fortunate to provide industry leading returns, and we want to extend this invitation to you.
o During this process, we manage your portfolio for you and allocate all your assets for you based on the goals that you and your family may have
· Asset allocation
o While it may seem like you must have money in our investment management services to utilize this, and while that is the most efficient way to take advantage of our services, it is not required. We have found that people are often incredibly misallocated on their retirement accounts with their employer, which could cost a young person or family hundreds of thousands of dollars in returns and missteps in tax smart allocation and investing.
o We have also found that due to the current state of social media, younger individuals are often misled on the most efficient way to realize returns due to accounts portraying certain sectors as the golden ticket. Our goal is to educate individuals on the realistic aspects of their investment interests and let them make educated decisions from there on how they want to invest in each sector. (ex. Cryptocurrency, real estate, momentum stocks, etc.)
· Financial Planning
o This may be the most important aspect for young families to take advantage of in our new program because it will allow them to set their goals out on the table and allow us to build into that and show them how much they need to contribute and where to allocate to achieve that. We use advanced software that will calculate to the penny everything from salary, expenses, and goals, all the way down to how much social security you are projected to receive based on income and property tax. It is the most efficient way to realize if you are on track to meet and exceed your families’ goals. This will also allow us to show where there may be holes in your planning and allow us to correct these gaps.
· Peace of mind
o Our main goal for you is to remove the stress and constant worrying that often accompanies finances. With us, you will know that you are properly structured and can rest easy knowing we are on top of things, and as a fiduciary, we aren’t salesman, and have a legal obligation to do what is right for you, not what pays us the most.
If you would like to learn more, fill out the form below and we will reach out to you and answer any questions that you may have!
Zelus Wealth Management Announces Jacksonville Expansion
Last week we announced that in 2022 both Jacksonville, Florida, and Oklahoma City would serve as our headquarters of operations. Our Florida expansion will have no impact on the services or clients we serve in the State of Oklahoma, or the surrounding states of Texas, Kansas, or Arkansas.
We are excited to continue to grow our business in our home state of Oklahoma as well as the state of Florida in the coming year, and make both Oklahoma City and Jacksonville our home for many years to come.
Is Your Advisor a Fiduciary? Probably Not, What That Means for You
Something that often surprises people is that the advisors and institutions they place in the care of their assets often aren’t held to the fiduciary standard. “Advisor” models of the past saw advisors spring up from brokerages, presenting that they hold client’s best interest in mind, although not held to this standard by any metric as they are in essence, salesman. This can be said for most firms, most of whom were founded on this old model, although the future looks a little difference.
While we aren’t saying that there is certainly going to be a conflict of interest from a firm that isn’t held as a fiduciary, what we are saying is that it is certainly possible. You might be surprised to know that some major firms will even run incentives for advisors to push certain products on a seasonal basis. For example, Firm A could notice that Life Insurance numbers are down for the fiscal year and offer ‘advisors’ a bonus on all new life insurance contracts. You might even be thinking about a time that your advisor suddenly thought a new policy was a great idea, and then you never heard much more about it. For me, it seems a little more than unethical to build a guise that we have nothing more than a client’s goals in mind and finding the most efficient and effective means to achieving this, when there’s a quota on products to sell.
The model of the future is a fiduciary. No quotas. No hidden agendas. Fee based advisors have begun popping up more and more across the country, and all this means is an advisor accepts only a fee, no commissions. Often, these firms are held to the fiduciary standard, meaning we legally must do what is right for you, not what makes us, or the firm, the most money. Zelus is classified as a fee only advisor, that is held to the fiduciary standard. This isn’t to say that any advisor that charges a fee is fee only. You’d be surprised to know most of the brokerage based advisory firms charge a fee and commission.
There is a lot of great advice out there, but there is also some that, for lack of a better word, can become ‘clouded.’ If you don’t know whether or not your advisor is held to the fiduciary standard, you might be surprised to know that the majority of advisors are not. There is a fundamental difference between advisors tied to brokerages and those that are working as a Registered Investment Advisor.
-Colin Feller
What to Expect From Your Financial Professional
When we enter into a partnership with a new client, it’s easy to spot who has been on Google to see what they should expect. They often read a check list of questions, but I’ve noticed that no one seems to ask the important questions, or more importantly, they don’t know what to expect, and therefore, what to ask.
Here are a few things that you should expect from your financial professional.
1. Urgency
This is something that we founded Zelus on. Far too often, I’ve seen advisors who for one reason or another, believe that the clients work for them, not the other way around. Whether that’s a fancy title (usually given to themselves) or a nice car, if your advisor doesn’t handle your needs with the same sense of urgency that he would put into his own finances, you’ve got the wrong guy. The great thing about modern technology, and especially in our industry, is there is never a reason that you should feel less than a priority. It doesn’t matter if your advisor is on vacation, if you have an urgent matter, it should be able to be addressed in a timely manner, from anywhere in the world. That’s the great thing about a cell phone, laptop, and help back at the office. It may not always be an urgent need, but it should always feel like your needs are handled with the utmost sense of urgency, the same way I would handle my own needs, especially when it comes to money. If your advisor was on vacation and had an issue with his funds, you better believe it would be handled. Why should your needs be any different?
2. Understanding
This is a big one. Our job is not to take your money and invest it blindly. You should always understand what you are invested in. If it’s too complex for you to understand, it’s probably too complex to hold. We often see clients with portfolios prior to transfer with wild strategies that underperform the market, usually fairly significantly. Fear comes from a lack of understanding, and while I’ve found most of my clients have a slight fear of the markets, we have also found that they feel a lot better about this fear after we have walked them through their investments. There are no tricks, no hidden shortcuts to building generational wealth. If we can understand your investments, so can you, and you should always understand them. Once again, we work for you, not the other way around.
3. Clear and Honest Fees
This also applies to your fees. We are a fee-based planner, and we charge a flat fee. There are no hidden commissions on the side, no up-front hidden fees, and certainly never any quotas. Many people are shocked to find out how much they are actually paying in fees and commissions. Do me a favor, just google your advisor’s firm fees, and read a few articles. There will be plenty to read, especially if you are with a nationwide firm. I bet you are shocked with what you find. Time and time again, clients are certain they only pay a set amount, only to find out they are paying way more after trade fees, management fees (the fee they are usually certain is the only amount they are paying), and commissions. On top of that, most firms have quotas, or certain products they are pushing for a given time. You can see how that could be conflict of interests. For this reason, most aren’t a fiduciary, meaning they don’t have any real legal obligation to do what’s right for you. We founded Zelus as a fiduciary, with a legal obligation to do what’s right for you and charge a flat fee. None of the other hidden tricks.
-Colin Feller, President
Why Holding Cash is No Longer ‘Safe’
Probably the most common theme we hear across our profession, especially in areas that are more rural, is the fear of the markets and desire to hold cash. After all, cash is king. In essence, it’s hard for me to blame people for this logic. Most people in rural Oklahoma or the West Texas Desert don’t trust Wall Street or corporate America any further than they can throw them, and I don’t really blame them.
The real problem with this is that even when we think we are just mitigating risk by saving, we are actually losing. Now more than ever, holding cash, whether it’s in a Nike shoe box under the bed, or in a savings account at your local bank, is a losing battle. Every single day, the purchasing power provided from this sum of money becomes less and less. The projected inflation rate for 2021 is 2.24%, and this was projected before President Biden proposed another stimulus bill. This means that we have to return roughly two and a quarter percent just to be able to buy the same amount of goods in services on December 31 as we would’ve on January 1, and the odds that your savings account is doing this is slim to none.
I understand the distrust of the markets, I really do. It’s a delicate game, and people would rather not take the risk. The problem is in the current climate, the risk of not being invested is just as prevalent, if not more so, than the market risk you take by being invested. When we are holding cash, we know for certain we are losing. Every day, we (the United States) are printing money, and handing it out for political pandering, and shipping the rest of it to countries around the world with no end in sight. Besides, if we are just expecting the government to hand over the keys on their new found power, I assume we are sorely mistaken.
With proper asset allocation and investment management over a given period of time, all of these factors can be mitigated. Sure, if we look at the S&P on a yearly basis, we may see a down year now and again. But over the course of 10, 20, 30 years, we know what that looks like. There will be several market cycles in our lifetime, but we shouldn’t try to time a down market in order to buy in. Over the last 100 years, 3 out of every 4 years has been a positive year in the market. So the second we try to time a buy in, the odds are stacked 3 to 1 against us.
Our fears are often misplaced, but currently, the only thing that is certain is any stockpiles of cash you may have are losing purchasing power at an extreme rate. The real fear from the markets comes from misunderstanding or lack of knowledge. You should never feel like you don’t understand what you are invested in, and it is our job to make sure you are comfortable with and understand your holdings. Our goal is to make sure you never feel uncertain again, and allow you to rest easier at night, knowing you aren’t losing 2.24% of your purchasing power this year by holding excess cash to avoid market risk.
-Colin Feller, President
How Much Do I Need in Savings?
One common theme of anxiety we hear about investing is clients who want to know what the magic number they need to keep in savings is, so that afterwards, they can begin investing excess cash flow. If you’ve read any self-help financial books by authors who shall remain nameless (help is a very loose word to describe these books), they almost all have an amount you should sit on. The main problem with this, while I don’t know these authors’ intentions, it is at the very least intellectually dishonest to pretend that everyone is similar, let alone so exact that a blanket statement like “if you’re 27 and make $75,000 a year, you need to have at least $25,000 in the bank, and absolutely always pay cash” fits every person reading the book.
There are plenty of things to stress about in 2021, your finances shouldn’t be one of them. For this reason, the answer to this question is however much you feel comfortable with. For some of my clients, this may be $50,000 in savings, for any situation that could arise, however, for some of my younger clients this is entirely too much, unless they just feel the need to have that added sense of security. If $20,000 is enough to give you peace of mind, then keep $20,000.
Another question that often arises, should I pay cash for large purchases, or should I pay cash? For example, a 30 year old couple, wanting to buy their first house. Assuming they have decent credit and get a 3.0% mortgage, the opportunity cost on equities is roughly 7%. If the couple pays cash, rather than taking out the mortgage to avoid debt and interest, they miss out on the annualized 10% return the stock market has averaged over the last 100 years. (10%-3%=7%). You are essentially losing money, so smart financial advice would be to put a solid down payment down, and take the mortgage, because at 30, it’s extremely unlikely this is the only house you will ever own. The same advice can be taken for buying a vehicle. We should always think of our bank account the same way we would think about running a business and avoid blanket statements about your finances. The most rewarding thing about my job is that every family I have the privilege of serving is vastly different from the next, and every day is different. We are all incredibly unique and have different goals, so we should always treat our finances that way.
-Colin Feller, President
401(k) Basics
Something very crucial but often overlooked, today we are going to talk about your 401(k) (or 403(b), TSP, etc.) Now I understand that when we hear someone talking about their 401(k), we are almost always bored to sleep, but stay with me for just a few minutes.
First, let’s talk about how your plan is set up. In 2021, you almost certainly have an option to elect a Roth option, and if you can, you should, especially if you are high earner. Some of you probably have heard of a Roth, but I’m sure many of you haven’t. The first thing you should do if you haven’t heard about a Roth is firing your financial professional, and then elect a Roth.
Essentially, the only difference between a Roth and a Traditional Deferral 401(k) is how you are taxed. As you already know, a traditional plan is contributed with pre-tax money. You contribute, and pay taxes at retirement, when you withdraw the money. A Roth however, you contribute with money that has already been taxed. You may be thinking, why would I want to pay tax now, when I don’t have to until later, when my tax bracket will almost certainly be lower? Here’s why: with a traditional deferral, you are taxed on every penny in the plan when you withdraw it. This includes your contribution, your employer’s contribution, as well as any gain you may have experienced, which will in all likelihood be substantial, if you contribute properly. For a Roth, you are only taxed at the time of contribution, not at withdrawal, meaning you aren’t taxed on any of the gain.
For instance, with a traditional plan, let’s say just for simple numbers sake, you contribute $100,000 tax free over your career. At retirement, you withdraw the money at a rate of 20% on $200,000, after gains in the market. We know this equates to $40,000 paid in taxes.
With a Roth, let’s assume you contribute the same $100,000, paying taxes at 30% at the time of contribution. In retirement, you again have $200,000, and pull it out tax free, meaning you saved $10,000 on taxes, since you paid 30% on your $100,000 contribution ($30,000), and got to withdraw all the gains tax free.
Another added factor that people often don’t think of is the tax rate. I’m not sure if we are all watching the same government spend our money with stimulus bills, but the tax rate is only going up. I think it is wise to get it out of the way now, because the 20% we spoke about earlier, may in fact be 30% by the time some of us retire.
As for the employer contribution, it is unaffected. You can still get your match; however, it will be contributed to traditionally, with pre-tax money. Think of it like having two buckets: one with money already taxed, withdrawn tax free (Roth); one pre-tax, contributed by your employer, which will be taxed at withdrawal (employer match).
Now that we’ve talked about the structure, let’s talk about allocation. Unless you are within 15 years of retirement, it is my belief that you should hold 100% equities, and here’s why: Over the last 100 years, the average rate of return for stocks in the US has been roughly 10%. Meanwhile, bonds have returned about 4%. I know we have all been told that bonds mitigate risk, and that’s true. But only over the life of the bond. A 10-year bond will only provide risk mitigation for those 10 years, not the following years. The majority of plan sponsored bond options are about 13 years, meaning they only provide diversification and mitigation of risk for that 13-year stretch. If you aren’t within 15 years for retirement, you are sacrificing almost double the return, for mitigation of risk during a time period you can’t withdraw money, without paying penalty. For this reason, it makes more sense to get the return until you are within a diversifiable window, which is roughly age 50, assuming you retire at 65.
There will be multiple market corrections in our lifetimes, whether you are a young professional or nearing retirement. Keep this in mind when you make any investment decisions.
-Colin Feller, President
How Much Money Will I Need For Retirement?
The Golden Question that everyone seeks from their advisor is often this. While we often think about the boat we will spend our retirement on, very few people seem to know how much money they will need to live their favored lifestyle in retirement.
Generally speaking, it has been found that we can spend 4% of our investments in retirement without ever outliving the assets themselves. Surprising enough to people who aren’t actively researching financial planning (you probably consider yourself lucky), this is the biggest risk facing current retirees. Thankfully, in 2021, we can get some more detailed retirement solutions on what we can do and how to get there from our friends at eMoney, which we use to build complex and personalized plans for our clients, but just for a second, let’s over-simplify it.
Let’s assume for a couple with $1 million in assets in retirement, we apply the 4% rule. This gives us $40,000 a year to spend in retirement, before social security, which the average benefit payment currently is around $1300 a month per person, which equals $15,600 per individual, or $31,200 per couple. Now, we know that this is exceptionally over simplified, but it does give us a good illustration of what we may need in retirement. So for the couple above, with $1 million in assets for retirement, they can currently spend $71,200 per year, and be comfortable not outliving their money.
This is probably not what you expected to read for a millionaire. While this can be overwhelming, it also emphasizes the importance of being efficient and effective in not just your investment strategy, but also in your contribution, planning and taxes.
We are often asked how much a family will need in retirement, but the simple answer is what lifestyle do you want to live? Do you want to leave your heirs anything? How about college for the grandkids? Do we want to help with that? What are the short-, medium-, and long-term goals? This allows us to reverse engineer your portfolio and build a plan to get there. As far as the boat we mentioned before, we can make that happen too. How early and often you contribute will determine the size of the boat.
-Colin Feller, President
The Age of Growth Stocks: Do They Fit in Your Portfolio?
If you asked an investment advisor ten years ago if they would recommend you hold a stock that didn’t pay a dividend for your long-term wealth building plan, they would have probably laughed at you. The idea that a company could be solid enough to realistically place large sums of money into, and not pay their shareholders a dividend just sounded outrageous. I ran into this as late as 2019, when the firm I was in charge of building models refused to replace Lincoln Financial with Amazon, all because Amazon was “too volatile” because they didn’t pay a dividend. Well, in that span, Amazon is up 87% and Lincoln is down 16%. But hey, it pays a dividend!
The age of solid growth stocks is upon us, and whether we agree with it or not, the reason for Amazon’s massive explosion in the online retail game is in part because they don’t pay a dividend. They use all their profit aiming at growth. More hubs, more products, faster shipping time, same day grocery delivery and so on. Are there still solid companies that pay a dividend? Sure, but that doesn’t mean the dividend should be the deciding factor on if you hold a position for your long-term goals. This is also not to say that we shouldn’t hold a stock because it pays a dividend. There are plenty of solid holds that will add diversification and mitigate some market risk, but also have a very bright future ahead of them. One in particular that comes to mind is General Motors, which has solid sales records dating back 100 years, but is also at the very forefront of autonomous and electric vehicle technology. It’s for this reason that GM, not Tesla, is in our stock model.
The way of the market is changing, and we either adapt or get flattened. The fear of holding companies that don’t pay a dividend is unfounded, especially if that is the sole gatekeeper. Twenty years ago, dividend stocks were seen as safer. They are making money, so they pay a dividend. In 2021, a lot of companies are making money, and rapidly expanding, using the cash that could go to a dividend thinking about future profits. I don’t know about you, but I would rather have a 10% growth company that has no dividend, than a 4% growth and 1% dividend. When I think of the four companies with the most power in our everyday lives (especially after 2020), I see Apple, Amazon, Facebook and Google, and only one of them pays a dividend.
Our objective is to get the best risk adjusted return, and in 2021, there will be some growth stocks that help us do that.
-Colin Feller, President
The Aftermath: Where Does the Retail Investor Go From Here?
Last week, I wrote about the retail investor boom, which came on the heels of the pandemic and the first round of stimulus checks, and the David vs. Goliath battle against Wall Street and Hedge Fund managers. Rather than waste time recapping, if you would like to read the prelude to this week’s blog, click here.
In the days that followed that article, some pretty flat-out unbelievable things took place. Hours after writing that post, Robinhood, the most popular ‘smart phone broker’, restricted trades on GameStop. Not in the way you would think, however. One would assume that Robinhood said “look in the best interests of our customers, the jig is up, the price is too high, this is artificial, and we are going to halt trading. No buys, no sells.” Whether you agree with that or not, (personally I don’t, put the pitch forks down Reddit), it is plausible that they would take this course of action. However, Robinhood made one of the most unprecedented moves in market history, and only allow people to sell, effectively killing the stock price of GameStop, as well as several other dying technology or retail chains. And while you are probably thinking, “wow that seems illegal”, the even crazier part of the situation is one of the Hedge Funds involved in the initial short, who stood to lose billions, Citadel LLC, is also owned by Ken Griffin, founder of Citadel Securities, who Robinhood uses to route over half of their orders. Essentially, when you make a trade with Robinhood, they send the trade to a clearing house to place the trade, and since Robinhood doesn’t own the shares themselves, the CEO, Vlad Tenev, has placed the blame for the halts on the clearing houses. So essentially, it hasn’t taken rocket scientists to piece the puzzle together and come to the conclusion that Robinhood intentionally crashed the market in order to help their hedge fund buddies at Citadel.
So What Should Retail Investors Do Now?
Hopefully, this experience has helped those of you reading this that participated in the Reddit frenzy realize how volatile and dangerous the markets can be, along with hopefully not wiping out all of your excess liquidity. We should all realize that there is a fundamental fact we face each time we set out in the market; there is a difference between investing and speculating. Aside from the obvious corruption that occurred, the laws of investing are concrete. Investing is the core belief that you can get a return on capital, with a satisfactory level of risk. Speculating throws this by the wayside, in hopes of a quick (sometimes long term) buck, regardless of risk. While the fundamental approach that has always been thought of as the most efficient means of investing hasn’t applied as well to some of todays’ growth companies, we still need to take a step back, and first and foremost think “if this company was in my town, would I give it money because I truly believe it can be successful?” While this is a very basic and slowed down way of thinking, the market isn’t anymore complex than you make it. We often try to overthink things, without realizing the market is still supply and demand driven. You may overthink it and be right, but if no one else can get to that same conclusion and help your investment grow and be successful by participating, you were still wrong. A good read on this is Misbehaving: The Making of Behavioral Economics, by Richard Thaler.
The obvious reason we are in business is to take care of these matters for people, building solid portfolios that stand the test of time, and allow us to reach our financial goals, so you don’t have to speculate or worry. Now more than ever, the importance of an excellent investment advisor is showing through, because the market is just one small piece of the big picture. Going forward, be very wary of any market trends you may come across on an online forum, and definitely never chase the market.
-Colin Feller, President
The Retail Investor Burst: GameStop, Reddit and The Squeeze Against Hedge Funds
If you keep up with the markets at all, it’s likely that you’ve seen people talking about the explosion in GameStop (GME) price over the last few weeks. If you are anything like me, you probably look at GameStop as a sort of bygone retailer, going by the wayside in the same way that Blockbuster did in the early 2010’s. However, GameStop’s share price has jumped from around $19 on January 12, to $347 today, January 27. So what is actually going on?
Reddit vs. Hedge Funds
Long known as the villain to common men, hedge funds are known for their elitist qualification programs, and 2 and 20 fee structure (2% annual, 20% of any returns you make.) When GameStop announced a restructuring of their board, including adding some high-profile executives from the ecommerce space, high profile hedge fund Melvin Capital announced a massive short stake in the company. (For those of you who don’t know what a short is, a short position profits off a declining stock price.) While Melvin Capital isn’t wrong in the assumption that GameStop is undoubtably a failing business, that in all likelihood won’t survive the next console cycle, Reddit users on the forum r/wallstreetbets came to the defense of the company, in an effort to “stick it to Wall Street.” Users on the page continued to cheer and urge other users to continue buying shares, as to ‘squeeze’ the shorts out of their position, and have to buy shares to cover the short, which drives the price of the company even higher. As of today, Melvin Capital announced that they had covered most of their shorts, buying shares of the company and causing even further price increases.
While most people are fine with the average Joe winning one every now and then, there is fear that the uneducated Robinhood retail trader’s power may be influencing the market in ways that previously weren’t possible. Many people have made life changing money on the GameStop boom of 2021, but GameStop will inevitably crash back to earth from the current $347 a share, which will hurt a lot more of the ‘average Joe’s’ chasing the market than it will Wall Street.
Human nature almost always tells us when prices are lower, we are more inclined to buy. However, we think almost the exact opposite of this about the stock market. We see a rising price on a stock and think less risk, more profit, and a declining price as more risk, less profit. It is for this reason that chasing the market always ends in someone getting burned, especially on something like GameStop, where we all know what is coming, because we have watched it happen before. There has been outcry for regulations and enforcement of pump and dump tactics to users who have been encouraging other investors to buy shares on Reddit this past week, but it is unknown what action the SEC will take to ensure an event like this doesn’t happen again.
So Should I Buy These Momentum Stocks?
While the average investor has shown how much power they actually hold, which by current estimates, retail investors make up 25% of the market space during the COVID Lockdowns, we should all be careful and remember that timing the market relies on two things: Insider information, or a hefty dose of luck, sometimes both. We know that the best mitigator of risk is time, and with proper planning and allocation, we don’t need to rely on gambles on volatile day trades to get to be extremely successful in the markets. We can plan and build portfolios in solid positions, with fundamentals and missions that we believe in and have high probability of success, but we should be wary of anyone who says they know exactly what the market is going to do in any given period of time, because if the last year has taught us anything, it is to be prepared for the unexpected. There is a big difference between investing and speculating, and any inclination to buy a momentum stock should be given the same probability of success as gambling.
-Colin Feller, President
What is Bitcoin?
Something clients are often curious with, especially being a young advisor, is my thoughts on (or what is?) Bitcoin.
Let’s start with the basics. Cryptocurrency and Bitcoin are one-in-the-same, but not mutually exclusive, whereas Bitcoin is a cryptocurrency, but a cryptocurrency doesn’t necessarily have to be Bitcoin. In fact, there were over six-thousand cryptocurrencies when President Biden was sworn in today, and there was likely a few created while he gave his speech.
Bitcoin was created in January 2009 via a whitepaper by Satoshi Nakamoto, a pen name for a still unknown person, although several people have claimed to be Satoshi. The idea was for a cheaper online payment mechanism and a decentralized authority, which is unlike government issued currencies. There are no physical bitcoins, only balances that are kept on a public ledger, and everyone has access to these records. Bitcoin (and most other cryptocurrencies) are not backed by any government, and chart on popularity, and unlike fiat currency, bitcoin is created, distributed, traded, and stored.
If you’ve paid much attention to conversations surrounding these crypto-assets, you’ve probably heard the term blockchain. Blockchain is the technology that allows for the existence of crypto and digital assets and was created with the invention of Bitcoin. Blockchain is extremely complex, but for practical purposes, let’s think of blockchain as a collection of blocks. Each block contains a group of transactions, and because groups of computers running the blockchain have the same order and information on the blocks and can transparently see when new assets are created within the blockchain, the system theoretically can’t be broken. While blockchain was created at the same time as Bitcoin, it has other applications. Because blockchain is considered “unhackable”, it could potentially be the future of all secure data storage, from banking, to voting, personal data and currency.
Should I buy cryptocurrency?
While cryptocurrency may go up in value, generally these assets are thought of as speculation rather than investments. Because they were designed the same way as physical currency, they generate no cash flow, so to profit on your investment, someone must pay more for said currency than you did. While Bitcoin grabs headlines for extreme price jumps, it is for this reason that it is unlikely it will ever be the future currency of the world. Currency must have stability, and Bitcoin is far from stable. There is also already a USD coin that is tied directly to the U.S. Dollar, which fluctuates accordingly, and despite what you may read on social media, a cashless society, especially a crypto only society, seems far-fetched for the time being. Speculation on Bitcoin or any other crypto currency should be done with money you can afford to lose, similar to gambling.
There are without doubt less volatile and risky positions to hold, and your advisor should never recommend you hold something as volatile as cryptocurrency, just as they wouldn’t recommend you spend too much time at the blackjack table. So if you just have an itch to own a crytoasset, do your research, and only speculate with money you can afford to lose.
-Colin Feller, President
Am I On Track to Retire?
As an Advisor, often the first question that we are greeted with is “am I on track to retire?” While this may seem like a simple question that could be met with an even simpler answer, the answer largely depends on you. I don’t mean what you’ve done, how much you’ve saved, or what performance you’ve received, although those are equally as important as the next, they are just variables in the equation. We want to know the answer to the equation when we ask this question, and although the world is an ever-changing realm of possibilities (now more than ever), the answer is relatively simple, but is arrived at by another question: What lifestyle do you want to retire into?
Theoretically, if you can live on what 4% of your entire retirement portfolio is, you are able to retire. Does that mean that you can still retire and keep a mortgage, car payment, and frequent vacations to Destin in the fall? For hypothetical purposes, let’s say that you can’t. Here are a few things that you can do to maximize your pre-retirement savings and build the best life for yourself in retirement.
· Plan for retirement early
o We have all seen the old adages that show the power of compound interest for savings. We see that if you invest $1000 for 10 years at 25, you end up with more than someone who invests $1000 a year for 30 years starting at 35. (Assuming an 8% return). As cliché as it sounds, the old adages are correct. The best advice is to start early, and set yourself up for the future. Now imagine the same scenario, but not just for 10 years. Saving for retirement from the time you begin working, until you retire, knowing that the average person in the United States lives until 79 years, and this number will in all likelihood continue to rise. This means we have to live, on average, for 14 years on our funds we accumulated.
· Make sure you are maximizing your employer match on your 401k
o One of the most crucial points to a retirement is collecting the match from your employer sponsored retirement plan. Whatever contribution amount your plan requires you to make to get the maximum match is what you should be making, if you can afford to do so. Otherwise, we are just leaving free money on the table. Prioritize this first, and make sure that this is one of your keys moving toward retirement, as it will likely be a sizable portion of your retirement income.
· Understand that Social Security will likely not be enough income alone to live on
o The topic of heated debate, basic math shows that without significant adjustments and funding to Social Security, the fund will be near exhaustion in our lifetime. Whether or not this legislation will come or not is to be seen, but one thing to be certain of is that social security will be incredibly difficult to live on by itself. (I would advocate for future generations to be granted the ability to opt out of SSI before they begin working, with the assumption of increasing the contribution limits to individual retirement plans, and allowing them to plan for themselves if they are so inclined, but that’s neither here nor there, and likely will never come into service).
· Understand the benefits of a Roth
o Something that always stuns me is how few people are educated on Roth 401k options from their employer. A Roth essentially says this: We will allow you to contribute to our retirement plan, but you will pay taxes on whatever you contribute now. However, you will not be taxed at withdrawal, and will not be taxed on the gains in your account, as long as you withdraw the funds in retirement. For instance, you could pay no tax now in a traditional 401k, and during retirement, you will pay tax on any distribution you take. With a Roth, you will make contributions now with after-tax money, allowing for tax free withdraws in retirement. This could potentially save you thousands (if not hundreds of thousands) in taxes over the course of your life. One thing to note with a Roth that confuses many people is whatever company match you are receiving will still be traditional, and pre-tax contributions, which will be subject to tax in retirement. Think of it as having two buckets, one you can pull from with no tax, because you already paid tax on it at contribution, and one that will have traditional taxation. If you are already in a traditional retirement plan, fear not. You still have the ability to switch to a Roth, and it may be wise to do so. Any money you have accumulated will stay in your traditional ‘bucket’ and any funds you accumulate moving forward will be in your tax free withdraw bucket.
These are just some of the things that you can do to stay on top of your future, and plan ahead for retirement. If you don’t think you are on track, don’t stress. It is almost always possible to build a successful retirement strategy, it may just require some extra financial commitment and frugality. Be wary of things you may read online or people that tell you exact percentages of what you will need in retirement before they have viewed your entire financial landscape. A general misconception that tricks people is saying “you will need 80% of your pre-retirement income in retirement.” While this could end up being the case, and could very well be the average, we are all vastly different, and far from average. For something as personal as retirement, make sure the figures on your needs are just as personalized.
-Colin Feller, President
Our 2021 Outlook
I’m sure for most of you, if you are anything like myself, 2020 was a whirlwind of highs and lows, and everything in-between. We saw the rise of COVID, a nationwide shutdown, unheard-of stimulus bills, and political turmoil. Like most of you, I am looking forward to turning the page on 2020, and diving head-first into 2021 with the same attitude I entered 2020 with: This is going to be my year.
It is great to have a positive perspective, however, having a rough insight on what to expect from the economy will give you a leg up on the upcoming year. This year, we know that we should expect anything. While the unknowns have become the center of attention, there are a few things that we can expect going forward.
Continued Fed support
o The Fed responded to the pandemic by unleashing a quantitative easing program that over the last ¾ of the year, equaled the size of all three programs prior. We can expect this support to continue into the new year, aimed at stimulating the economy.
Unemployment Decline
o The consensus expectation for unemployment is a decrease from the current rat of 6.7% to around 5%, however, with a new administration, a nationwide shutdown could be in the cards which makes this a big unknown going into 2021.
Global Demand Strength
o The consensus outlook on global demand remains strong, signaling that economists expect for demand to increase for 2021 as compared to the previous year. What that looks like remains unknown, but the expectation is for the reopening of global economies jarring demand dramatically upward compared to the first two quarters of 2020.
Additional Stimulus Bills
o With a new administration, and the potential to control all three chambers of government, we could be looking at additional stimulus bills aimed at curbing the effects of COVID-19. Because of the unknown at this time in the Senate, what this looks like in its entirety is unclear, but we can expect additional programs for unemployment, small businesses, and stimulus checks.
While it is a big relief to be out of 2020, with a sense that we are turning the corner on the pandemic, many people continue to be fearful of what is to come. One area that you shouldn’t be fearful is your investment portfolio, and in your financial plan. If you are paying an advisor a fee but are worrying, then we aren’t doing what you pay us to do, which is to give you faith in your plan and its execution. As your advisor, we are here to give you comfort in the absolute certainty that we are handling your portfolio with the same level of care and efficiency that we are our own, and that there will be market cycles, and we have built this into your plan from the beginning, and no down-turn is going to prevent us from reaching your goals, together.
So ease up, worry less about the granular details, and rest easy knowing that 2021 will be our year.
-Colin Feller, President
How a Biden Presidency Impacts Your Estate Taxes
Barring an unprecedented last second change, Joe Biden will unseat Donald Trump on January 20th, 2021. While uncertainty is at an all-time high, it is always wise to try and look forward and plan for how the new administration affects you. One area that will almost certainly be affected is your Estate Planning.
The Tax Cuts & Job Acts of 2017
One of the many things enacted under President Trump, the TCJA of 2017 dramatically increased the amount of money a person or couple can pass down to their heirs. Prior to the TCJA, the amount of money that could be passed down tax-free was $5,490,000 for individuals, or $11,980,000 for couples. Whatever amount that exceeded these values was taxed at a rate of 40%, however, since the passing of the TCJA, this value is now $11,580,000 per person, or $23,160,000 for a couple. The initial legislation for this bill was to be in place until 2026, unless reverted sooner, which is a very strong probability under the newly elected President.
Changes to Tax Exemptions
Biden has been outspoken bout repealing the TCJA, which in all likelihood will revert the estate tax limits back to the levels prior to 2017, meaning that anything over $5,490,000 per individual will not qualify for a taxation exemption. Changes to tax law could go into place as early as January of 2021, so being prepared is crucial to sound financial planning for the coming years. With unknowns still in play for the control of the senate, the depth of the cut to tax breaks is still up in the air. However, there are a few things that you can do to prepare yourself for a 50% reduction in qualifying tax exemption. If possible, gifting assets to your children before 2021 is one strategy to avoid the cut in exemption. It is also possible in some cases to gift or sell portions of your estate to different types of trusts as you prepare to pass along your assets to your heirs. The type of trust that you chose should be discussed with your advisor, as well as Zelus’ estate planning legal counsel.
With all of the uncertainty of 2020, it’s always wise to be prepared and hedge against uncertainty going forward. If 2020 has taught us anything, it is to expect the unexpected, and we are here to provide a sense of security and knowledge in an ever-changing future.
-Colin Feller, President
For more content specifically pertaining to young people and the market visit our President Colin Feller’s themillennialinvests.com
