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Special Coverage Wealth Management

Facing New Realities

 

The past few years — and even the past few months — have brought about changes to the landscape that should give individuals reason for thought as they consider their long-term financial goals — and how to reach them. These changes include everything from soaring real estate prices to inflation rates higher than those seen in the past 40 years. Overall, these changes and many others should prompt an even stronger emphasis on the ‘long term’ when it comes to financial planning.

 

By Patricia Matty

 

The pandemic and the resulting environment of the past few years has brought about a lot of changes to the financial advisory world.

While not unique to financial advisory, the widespread use of Zoom (or Microsoft Teams) meetings in lieu of face-to-face interactions has been a big change. This is true for initial meetings of new clients as well as existing client financial planning meetings and account reviews.

As we have all experienced, remote meetings make it much more difficult to get a real sense of someone’s body language, gauge their comfort (or not) with a recommendation, adequate vocalization of their fears, and an increased difficulty in just making a true emotional connection. Aside from the physical aspect of the change, there have been some other repercussions that I would like to focus on. Some of these changes have been driven by the client, the others are being driven by me as the advisor.

On the client driven side, there has been a lot of moving parts. Some of these changes are monetary, some not. Looking at monetary changes:

• Real estate prices have changed drastically over the past several years. For most people real estate is the first or second largest piece of their assets. The upending of the real estate market has greatly increased the value of home equity for a lot of people, which has strengthened their balance sheets. For the Millennials who had not yet entered the market, the price of entry became a lot higher, with parents being asked for help more than ever.

 

• The impressive increase in the stock market over the past two years has altered the client side of the ledger. At the start of the pandemic, many people felt they could never afford to retire. The recent run up has given some hopes of retiring earlier than ever.

• Prices have risen. As a visit to any grocery store or home improvement center will demonstrate, inflation levels have been creeping up.

Patricia Matty

“The gains made in real estate and stocks over the past few years are sometimes making clients too optimistic, and we need to temper expectations.”

On the non-monetary side:

• Many people lost a loved one due to Covid related illnesses. For many, this has them questioning their existing priorities in life. Even if you did not lose a loved one, you probably had severe restrictions on visiting many of them, which has had a similar effect.

• Working from home has caused a reassessment of priorities as well. For those where work from home may continue, they often want to live someplace completely different than where they reside today.

• There is a great pent-up demand for travel. ‘Stuff’ seems to be taking a backseat to experiences and travel.

But as I stated earlier, this isn’t one sided. On the advisory side, we have also seen some changes.

• Bitcoin and other cryptocurrencies now receive a lot more attention;

• The changing client priorities necessitate updating client goals, and therefore financial plans.

• The gains made in real estate and stocks over the past few years are sometimes making clients too optimistic, and we need to temper expectations.

• Increased use of more-sophisticated financial planning software that can be screen shared with clients on Zoom calls.

• And last but certainly not least: needing to incorporate some ‘long term’ in long term financial plans. This is especially true on inflation over time, as well as accounting for lifespans.

It has been quite some time since planners have been faced with an inflationary environment. Rising prices can be devastating to a financial plan if you are not adequately positioned. All too often, we see clients who are overly concerned about short-term market volatility, but turn a blind eye to the long-term effects of rising prices on their spending power. As our sophisticated software consistently demonstrates, however, this is the real risk to achieving your goals over time.

Regarding longevity, it is all too easy to say you and/or your spouse “won’t make it to our 90s” and fail to adequately invest for the long term. Despite COVID, people are living longer than ever, and healthcare continues to improve. Having adequate resources over the long term is essential and requires planning.

With all of the above said, in the wisdom of Forrest Gump, “Life is like a box of chocolates, you never know what you’re going to get.” We don’t know what the stock market, real estate market, inflation, lifespan, and other factors will be over the years to come. So what should you do in light of the evolving changes?

Meet with your advisor. In person if possible, especially if you have significant changes. Life changes, and so do your priorities. Make sure your advisor understands your goals, especially if they have shifted. In addition, have a two-sided dialogue with your advisor, making sure you are comfortable with their recommendations as to how to achieve your goals. u

 

Patricia Matty is senior vice president and financial advisory director at Springfield-based St. Germain Investment Management. She has an extensive education and business background, with 18 years in the financial services industry. Her background is in business management, financial planning and relationship development. She holds Series 7 and 66 designations for securities representatives and investment advisors, earned the Accredited Investment Fiduciary [AIF], and holds the Trust 1 certification; (413) 733-5111.

Banking and Financial Services

And Why Investors Should Consider Re-evaluating This Strategy

By Jeff Liguori

 

Humans are historically bad at long-term thinking. In the world of finance, that behavior has dramatically worsened over the past 50 years.

Today, the average investor holds an individual stock for less than six months; in the late 1990s, that period was approximately two years. Go back to the 1950s, and investors were holding individual stock for nearly eight years on average.

What has caused such a drastic shift in investor behavior? First, access to markets has never been greater, which creates ample amounts of liquidity for trading. Second, ever-growing reams of information are disseminated at lightning speed, preying on our psyches. Finally, the cost to trade shares of a stock is negligible — in many cases, zero. Each of these trends is quite beneficial to the average investor. However, the combination of these factors promotes behavior that does not support a long-term view of investing.

For the sake of analysis, let’s look at the performance of Target Corp. (symbol: TGT). From July 1, 2013 through Nov. 30, 2021, the total return of Target’s stock (price appreciation and dividends) was 350%. During that same timeframe, the S&P 500 had a total return of 230%. However, shares of Target largely underperformed the broader market in the five years following July 1, 2013, returning 29% vs. 86% for the S&P 500.

Jeff Liguori

Jeff Liguori

“Ever-growing reams of information are disseminated at lightning speed, preying on our psyches.”

There was no lack of bad news in that five-year period, including a change in leadership with a new CEO and a failed plan to expand into Canada that cost the company more than $5 billion. But a patient investor with a long-term view, who believes in owning solid businesses, has been handsomely rewarded by staying with Target.

A recent article in the Wall Street Journal highlighted a little-known mutual fund manager, Wilmot Kidd, who has had exceptional investment performance.

“Over the past 20 years,” it notes, “Mr. Kidd’s Central Securities Corp. … has outperformed Warren Buffett’s Berkshire Hathaway Inc. Over the past 25, 30, 40, and even nearly 50 years under Mr. Kidd, Central Securities has resoundingly beaten the S&P 500. The keys to his success? Patience, concentration, and courage.

“If you had invested $10,000 in Central Securities at the end of March 1974, when Mr. Kidd officially took over,” the article continues, “you would have had nearly $6.4 million by the end of this October, according to the Center for Research in Security Prices. The same amount put into the stocks in the S&P 500 would have grown to $1.9 million.”

Analysis on Kidd’s fund suggests an average holding period north of 10 years. But some of the companies in which Central Securities is invested have been part of the fund for more than 30 years. And during Kidd’s tenure, the fund has underperformed the S&P 500 several times. But having the courage of his convictions, and staying invested through market cycles, has served his clients very well, despite periods of underperformance.

Investing today is about constant measurement. Companies produce quarterly earnings reports, compelling Wall Street analysts to change projections and adjust ratings, which forces investors to rethink their investment ideas. Add in exogenous events to amplify anxieties, and it is no surprise that the investing public has become so shortsighted. No, I don’t worry about the potential ramifications of Russia invading Ukraine on my stock portfolio (an actual assertion from a client!).

As a kid, I remember my grandfather diligently keeping track of the few stocks he owned, writing the end-of-month prices in a journal. He didn’t have the luxury of technology; his analysis was straightforward and pragmatic. He invested in companies with which he was familiar. He had no formal degree, having to forgo college to support his family during the Depression. The son of immigrants, he owned and operated a small grocery store whose customers were almost entirely working-class or even working poor.

One of his suppliers was a company called Corn Products Inc. The company still exists, now called Ingredion (symbol: INGR). For him, investing was about owning a piece of this company that he had a personal connection to, in the hopes of growing a nest egg. Whenever there was ‘extra’ money from his earnings, he would add to his positions. My grandfather retired in 1982 having never earned more than $30,000 in any given year. The value of his portfolio exceeded $600,000 prior to his death in 2011.

He didn’t know he would live for nearly a century, passing at age 97, but he sure invested like it. u

 

Jeff Liguori is the co-founder and chief Investment officer of Napatree Capital, an investment boutique with offices in Longmeadow as well as Providence and Westerly, R.I.; (401) 437-4730.

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