Honest investors can attest that stock picking is hard. A strong conviction pick can lead to out-performance one year and under-performance the next. Or, vice-versa.
I recently saw a discussion on Twitter among financial professionals based on the following question:
Without Googling the answer, what is the best performing US stock over the last 20 years?
Some of the responses included companies like:
I responded with Phillip Morris (PM).
The correct answer: Monster Beverage (MNST). By a lot!
Would you have guessed that one correctly?
Over the past 20 years, Monster Beverage stock has returned a whopping 130,697%!
Yes, you’re reading that number correctly. In fact, it’s YTD total return is near 35%. Good news – 66% of the outstanding shares are held by institutions. Odds are you can find it in one (or more) of your mutual funds or ETFs.
The next highest stock is Apple with a 20 year total return of 61,169% – numerically less than half.
Interestingly enough, when you look at top performers over the past 5, 10, and 15 years, Monster is #17 in the past 15 years and then doesn’t crack the top 20 stocks in the recent 5 or 10 year periods.
If you look at the results, a lot of stocks fall in and out of favor over various time periods. This is why time in the market beats timing the market.
As I write this post, the current darling is Nvidia. The stock price has just recently regained it’s December 2021 high after a price decline of roughly 65% through 2022.
Since it’s October 2022 low, the stock has rocketed back near 238% as of today’s trade price. in October 2018 the stock dropped a quick 54%, fully recovering in late April 2020.
A stock like this that makes big swings requires one to have a strong stomach and lots of patience. It’s one you wish you would have bought at it’s low, never mind that psychologically the lows are where many people get scared out of owning stocks.
Below is NVDA’s 10-year chart with Relative Strength Indicator at the bottom.
Then, there are doozies. These are stocks that performed well in one year but not the next. This happens all the time. In fact, investing in last year’s high performers can be a recipe for disappointment.
The best performing stock of 2022 was Occidental Petroleum (OXY), with a total return of 119.1%. The stock is now down a little more than 22% Since hitting it’s high in early November 2022.
Speaking of a strong stomach and patience, below is OXY’s 10-year chart with Relative Strength Indicator at the bottom.
Making investment decisions based on recent performance is akin to the proverbial “live by the sword, die by the sword.” Charts like these can be helpful for technical analysis and spotting trends. They can also be completely non-helpful for long-term investors who may tempted to buy or sell based on timing.
I’ve made the wrong calls in my own portfolio at times when I’ve tried to outsmart the market. I have several of these stories, and my own mistakes are why I’m slow to trade and rebalance in client accounts. Temporary underperformance – like in 2021 – eventually leads to steady performance and sometimes even outperformance – like in 2022.
Admittedly, I’ve been tempted to trade on changing trends at times. However, I must remember my criteria for making the investment in the first place, the long-term fundamentals.
I believe a lot of investment mistakes are made when investors invest without a dependable investment discipline. Fear and FOMO are often the basis for investment decisions. When you violate a defined investment discipline, you’re likely chasing things that are hazardous to your wealth.
To create your investment discipline, start with defining the reasons you wish to invest. What is the purpose for any performance results you achieve? Are you funding education, saving for a specific purchase over the next 2-5 years, or providing retirement income? Knowing your purpose is the best barometer for staying on track.
Then, decide the time period you intend to invest. The longer the time period, the more patience you can exercise through market volatility. There will always be market volatility for all sorts of reasons. Long-term investors should not be driven by fear and FOMO. Rather, they should be cautious of fear and FOMO and use these opportunities to rebalance portfolios.
Next, understand the amount of risk you are comfortable taking with your investment strategy. Risk is a key component to investment selection and allocation. Fear and FOMO can influence your feelings about risk, so try to assess from a mindset of steady markets.
Now that you have your purpose, your time frame, and your risk tolerance, set your allocation accordingly. As an example: using the Nitrogen Risk Number® methodology, if your speed limit is 65, an allocation of 65% or so to stocks is probably most appropriate.
For moderate investors with a longer time frame a sample strategic allocation might look like:
This sample allocation can be dialed up or dialed down based on your purpose, time frame, and risk tolerance.
Short-term investors may want to take the extra step to set up and down limits on investment results. As a basic example: an investment that rises by 10% or declines by 10% over a 1 year period should be evaluated and potentially sold.
If you aren’t sure how to evaluate individual stocks or bonds, consider index ETFs or mutual funds. Choosing a fund for an entire index such as the S&P 500, factor funds like growth or value, or sector funds like tech or healthcare, ETFs and mutual funds participate in the collective growth of many companies.
The key to investment success over time is setting your asset allocation, occasionally rebalancing, and avoiding emotional decisions based on fear and FOMO. If a stock you don’t own starts ripping, you may not want to chase it. If a stock you own falls fast, you may not want to sell it.
An investment discipline keeps you top of what you own, why you own it, and for what time period. Sticking to your strategy helps you ride the inevitable volatility waves that come with investing and avoid the trap of chasing performance.
Want a review of your investment strategy? Learn more about our financial advice approach here.
Life Moves Wealth Management is a registered investment advisor offering advisory services in the States of Arizona and Indiana, and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. Information contained on this site should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.
The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.
HYPERLINK DISCLOSURE – The information being provided is strictly as a courtesy/convenience. When you link to any of the web sites provided here, you are leaving this website and assume total responsibility and risk for use of the web sites you are visiting. We make no representation as to the completeness or accuracy of information provided at these websites. Life Moves Wealth Management is not liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technology, web sites, information and programs made available through this website. Life Moves Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Life Moves Wealth Management’s web site or incorporated herein, and takes no responsibility thereof.
The US debt ceiling is all over the news today, so let’s talk about it.
Before 1917, Congress had the ability to use the Power of the Purse at their own discretion. In effort to make the federal government fiscally responsible, the debt ceiling was created.
The debt ceiling cap currently stands at roughly $31.4tn. That limit was breached back in January.
Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents.
House Speaker McCarthy is in a tight spot… Failing to raise the debt limit in the next three weeks could be catastrophic for the U.S. economy, but neglecting to secure the desired spending cuts could cost him the gavel.
Moody’s Analytics predicts that a default would shave around 4% from U.S. gross domestic product (GDP), see stock prices fall by a third, and result in companies slashing nearly six million jobs.
As Ulysses Everett McGill from the movie Oh Brother Where Art Thou? would say “we’re in a tight spot.”
Sources used for this episode:
https://www.investopedia.com/terms/d/debt-ceiling.asp
Life Moves Wealth Management is a registered investment advisor offering advisory services in the States of Arizona and Indiana, and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. Information contained on this site should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.
The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.
HYPERLINK DISCLOSURE – The information being provided is strictly as a courtesy/convenience. When you link to any of the web sites provided here, you are leaving this website and assume total responsibility and risk for use of the web sites you are visiting. We make no representation as to the completeness or accuracy of information provided at these websites. Life Moves Wealth Management is not liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technology, web sites, information and programs made available through this website. Life Moves Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Life Moves Wealth Management’s web site or incorporated herein, and takes no responsibility thereof.
The Fed raised rates again today – the 10th hike in this current cycle.
As a range, Fed funds rate was 0.00%-0.25% just 13 months ago. With today’s hike, it is now set a range of 5.00%-5.25%.
The Fed funds rate is one of the primary monetary policy tools. By raising this rate, the Fed is slowing a heated economy by indirectly influencing consumer and business borrowing rates.
In the latest episode of the Financial Purpose Podcast, I’ll explain at a high level what the Fed funds rate is, how it works, and what it could mean for the economy.
Life Moves Wealth Management is a registered investment advisor offering advisory services in the States of Arizona and Indiana, and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. Information contained on this site should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.
The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.
HYPERLINK DISCLOSURE – The information being provided is strictly as a courtesy/convenience. When you link to any of the web sites provided here, you are leaving this website and assume total responsibility and risk for use of the web sites you are visiting. We make no representation as to the completeness or accuracy of information provided at these websites. Life Moves Wealth Management is not liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technology, web sites, information and programs made available through this website. Life Moves Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Life Moves Wealth Management’s web site or incorporated herein, and takes no responsibility thereof.
What services do you expect from your financial advisor? What are you actually getting?
Think about it. Is there a gap between your advisory expectations and the reality?
Research from SpectremGroup among wealthy investors shows there’s a massive advice gap in many crucial wealth management services.
There are many reasons why such an advice gap may exist, including:
Note this survey was conducted among wealthy investors.
What about those not considered wealthy, which may include families with less than $1M investable assets? If these investors are surveyed, would the advice gap be even wider?
I explore this topic further in Episode 20 of the Financial Purpose Podcast. Listen here:
Life Moves Wealth Management is a registered investment advisor offering advisory services in the States of Arizona and Indiana, and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. Information contained on this site should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.
The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.
HYPERLINK DISCLOSURE – The information being provided is strictly as a courtesy/convenience. When you link to any of the web sites provided here, you are leaving this website and assume total responsibility and risk for use of the web sites you are visiting. We make no representation as to the completeness or accuracy of information provided at these websites. Life Moves Wealth Management is not liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technology, web sites, information and programs made available through this website. Life Moves Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Life Moves Wealth Management’s web site or incorporated herein, and takes no responsibility thereof.
Changing jobs and wondering what to do with your 401(k)?
You have four options available for your 401(k) plan when changing jobs. Yet, almost half of job changers cash out.
A Harvard Business Review study found that approx. 41% of employees took a cash distribution when changing jobs. Of these, roughly 85% of those people cashed out the entire balance!
This is called retirement leakage, and cashing out can be detrimental to your long-term financial and retirement health.
To provide framework, here are the four options for your 401(k) when changing a job:
If you have an outstanding loan against part of your 401(k) balance, it must be paid back before completing a rollover or cash out from the plan.
You’ll also want to check your vested balance.
You are entitled to 100% of any contributions you’ve made into the 401(k) plan. The amount of employer match you’re entitled to is based on the vesting period. A vesting schedule is based on the length of time required to have ownership (or vest) in the employer’s contributions.
If you’re 100% vested in employer contributions, you’ll receive all of the money the company has contributed on your behalf. If you have not been with the company for the required amount of time, you may receive only a portion of employer contributions.
Finally, you’ll want to compare the costs of your options. Ask for the participant fee disclosure for each plan. That document will reveal all the fees associated with each plan. Then, evaluate costs based on how your current money is invested. You’ll have a better idea if you want to keep your old 401(k), roll it over into your new employer’s plan, or roll it into an IRA.
According to Vanguard data from 2021, the median 401(k) account for a 55- to 64-year-old was $89,716. It’s an alarming statistic!
At this level, the income potential is small and may add very little support above Social Security.
Despite the high focus on saving, one key fact remains: In the U.S., employees can cash out part of their 401(k) while working, or all of it when leaving a job.
Among developed economies, only the U.S. allows firms to present this option to a departing employee!
In the U.S., employees can cash out part of their 401(k) while working, or all of it when leaving a job.
One can argue this comes down to both bureaucracy and psychology. When you see the option to cash out, your brain sees money available that has otherwise been off-limits and out of reach.
Evidence supports the theory that the more money your employer has contributed, the more likely you will see that as “free money.” This “found money” effect can give one overconfidence in their ability to make better use of the money based on current life and market conditions. In addition, you may be inclined to think you will have plenty of time to resave the same amount of money over time.
The truth of compounding is that cashing out completely works against your long-term progress. Regaining the same savings momentum is nearly impossible once the process of compounding is stopped.
Employers can work with a financial advisor to develop a workplace financial literacy program. This type of program may be fully customizable to your workforce and can be built to accommodate and complement your existing retirement plan.
These programs are designed to help employees learn ways to relieve financial stress by providing a financial literacy resource. According to The Employer’s Guide to Financial Wellness, financial stress results in approximately 11–14% of annual payroll costs in lost productivity and increased turnover.
When structured and executed consistently, these programs have been shown to benefit the business by:
Setting up a workplace financial literacy program requires a firm commitment to your employees and a good financial services partner. As a suggestion, your business can implement a “lunch ‘n’ learn” or “coffee and bagels” program. These can be help quarterly or semi-annually.
For the program, employees will hear an engaging presentation on a timely financial topic. As an added benefit, they can also opt-in to receive a short one-on-one session with the financial professional. In these sessions, they can have questions answered and receive financial tips. Should they wish to pursue further financial planning services, they can directly engage the financial professional.
Programs like these can go a long way to helping your employees and, in turn, help your business.
Own a business and want to learn more about setting up a workplace financial literacy program? Send an email to info@lifemoveswealth.com for more information.
Life Moves Wealth Management is a registered investment advisor offering advisory services in the States of Arizona and Indiana, and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. Information contained on this site should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.
The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.
HYPERLINK DISCLOSURE – The information being provided is strictly as a courtesy/convenience. When you link to any of the web sites provided here, you are leaving this website and assume total responsibility and risk for use of the web sites you are visiting. We make no representation as to the completeness or accuracy of information provided at these websites. Life Moves Wealth Management is not liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technology, web sites, information and programs made available through this website. Life Moves Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Life Moves Wealth Management’s web site or incorporated herein, and takes no responsibility thereof.
Making better decisions requires an effective and structured process.
Consistently following such a process can be challenging, especially when emotions come into play. Emotions can cloud our judgment and steer us away from the logical path. This generally leads to suboptimal outcomes.
The natural goal is to consistently achieve good results by following a reliable decision-making process. However, in high-pressure situations, our emotions can derail our efforts to do so.
This episode of the Financial Purpose podcast offers an insightful visual aid to demonstrate how the quality of our decision-making process impacts our results.
Take a moment to reflect on the quadrants. Which have you have found yourself in during past decision-making scenarios?
To watch or listen to this informative episode, click on the link below.
Listen to Financial Purpose Podcast Ep 18 Making better decisions!
Learn more about the Life Moves Wealth approach here.
Life Moves Wealth Management is a registered investment advisor offering advisory services in the States of Arizona and Indiana, and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. Information contained on this site should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.
The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.
HYPERLINK DISCLOSURE – The information being provided is strictly as a courtesy/convenience. When you link to any of the web sites provided here, you are leaving this website and assume total responsibility and risk for use of the web sites you are visiting. We make no representation as to the completeness or accuracy of information provided at these websites. Life Moves Wealth Management is not liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technology, web sites, information and programs made available through this website. Life Moves Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Life Moves Wealth Management’s web site or incorporated herein, and takes no responsibility thereof.
Mental health is a key factor in financial health. The money beliefs that you internalized during your formative years, known as personal money scripts, can shape your financial decisions throughout your life. Awareness of these money scripts and their influence can help you avoid hasty financial choices when you’re under duress.
Money scripts can hijack logical financial decisions by subconsciously guiding our behavior towards money. These deep-seated beliefs can lead us to make impulsive or irrational financial choices that don’t align with our long-term goals.
For example, someone with a scarcity mindset may hoard money and avoid investing it, even when the logical decision would be to invest for growth. Recognizing and understanding our money scripts can help us break free from their grip and make more informed financial decisions.
Recently, I’ve noticed a shift in people’s attitudes toward money matters since the pandemic hit. People appear to be hesitant to make significant financial decisions, yet they are more prone to prioritize security during times of economic uncertainty. Did the pandemic bring about a fundamental change in our values, or did it simply reinforce our pre-existing money scripts?
In this episode of the Financial Purpose Podcast, I’m joined by Jamie L. Born, LCSW, CCTP to discuss how the continuum of mental health plays a role in money decisions. We discuss “Big T” and “little t” trauma, when you might be reacting from heart vs business (emotion vs logic), and when to seek help from a counselor.
Listen to Financial Purpose Podcast Ep 17 The Continuum of Mental Health and Money
Learn more about Jamie and Born Counseling here.
Learn more about the Life Moves Wealth approach here.
Life Moves Wealth Management is a registered investment advisor offering advisory services in the States of Arizona and Indiana, and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. Information contained on this site should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.
The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.
HYPERLINK DISCLOSURE – The information being provided is strictly as a courtesy/convenience. When you link to any of the web sites provided here, you are leaving this website and assume total responsibility and risk for use of the web sites you are visiting. We make no representation as to the completeness or accuracy of information provided at these websites. Life Moves Wealth Management is not liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technology, web sites, information and programs made available through this website. Life Moves Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Life Moves Wealth Management’s web site or incorporated herein, and takes no responsibility thereof.
Banking systems and FDIC insurance have captured public interest in the wake of the Silicon Valley Bank (SVB) failure.
How much do you know about the fractional reserve banking system?
In a fractional reserve banking is a system, banks are required to hold only a fraction of their deposits in reserve. They are free to lend out the remainder of deposits on hand. The system allows banks to create credit and expand the money supply.
This is the primary reason a bank can fail. A classic “run on the bank,”causes this when withdrawal demands are higher than available reserves.
An overview of the fractional reserve banking system:
If this is the first time you’ve heard the bank may not have all of everyone’s money on deposit at all times, welcome to modern banking. This system often receives criticism for contributing to financial instability during crisis periods.
Financial instability occurs primarily when consumers get nervous about the safety of their money. A nervous consumer wants to protect their assets from the risk of loss. With enough level of concern, they decide to withdraw their money from the bank. This also has a multiplying effect if more and more consumers also take this action as a precaution. Nothing attracts a crowd like a crowd.
But, we are in the modern banking era. A classic run on the bank is less likely to occur by way of standing in line outside the local branch. A run on the bank now happens electronically. It’s much more swift and significantly harder to control once it begins. This is part of the SVB story.
Did you know: Since 2009, there have been a total of 513 bank failures in the United States.
513.
Did you hear about any of those? Can you name one that failed between 2009 and 2019? There were no bank failures in 2021 or 2022. There have been 2 in the US so far in 2023.
See a full list of failed banks since 2009 here.
Google searches on FDIC insurance have increased as of late. Why? One public bank failure prompts concerns about the rest of the system. In the case of SVB, the FDIC stepped in to take over the bank and insure deposited funds well above the $250,000 limits.
As soon as a bank fails, the FDIC estimates how much that bank failure will cost the Deposit Insurance Fund (DIF). According to the FDIC, quarterly assessments on FDIC-insured banks fund most of the DIF. A good primer on the program can be found here.
One primary question now: how well-funded is the DIF? More than 85% of SVB’s deposits did not qualify for FDIC insurance. Yet, the FDIC, US Treasury, and the Fed have guaranteed all funds. Will this potentially prevent certain banks from having full coverage? Treasury Secretary Janet Yellen says it might, but vows to protect smaller banks if needed.
Banks fail for a variety of reasons. Banking failures in 2023 may bring back memories of those in 2007-2009. A constant news cycle and social media has a tendency to make conditions feel worse than what may be real.
The FDIC program is a relevant factor in the 2023 bank failures. Another highly relevant factor is Federal Reserve monetary policy decisions.
Monetary policy has been aggressive since March of 2022. The fed funds rate increased from 0.0%-0.25% to 4.75%-5.00% in just 12 months. Cash management has become a conundrum for banks and consumers. Morningstar estimates that more than $460 billion has flowed into money funds since mid-March 2022. It stands to reason some of these funds came from idle cash in bank accounts.
Cash management is a crucial function of wealth management, and a crucial function of the reserve banking system. Simply stated, cash management implies how well cash is positioned to earn yield from various sources. Rates have been so low for so long that cash and equivalents have not earned much yield.
Savings yields at banks have remained low while yields on short-term Treasury Bills and Notes, as well as CDs, have increased. If a depositor is earning 3% on a high yield bank savings account but can earn roughly 5% on Treasuries and CDs through their brokerage firm, guess where the money is going?
This is a problem for banks. With long-term borrowing rates as high as they are, banks may struggle to lend at a profitable volume. Now that short-term yields as high as they are, banks struggle to keep depositors from pulling money to invest elsewhere.
But this isn’t the only issue. The other issue is how the banks themselves operate cash management. Not only in lending long-term, but also in how the short-term money gets invested. Much of SVB’s reserve portfolio was invested in 10 year Treasury bonds. Seems prudent; however, because bond prices fall when yields rise, the bank was sitting on a large unrealized loss. To shore up liquidity, these bonds may be sell a loss. Some of the bonds must be held to maturity.
Lending long and borrowing short creates liquidity risk for banks.
Yes. Most likely.
Legislation coming out of Great Financial Crisis brought better regulation for banks and investment firms. This has led to a decrease in morale hazard and trading of toxic assets. FDIC insurance increased from $100,000 to $250,000. Most customers at most banks do not have enough on deposit to breach the FDIC limits.
Have concerns about your banking and cash management strategy? We can help you better understand your FDIC coverage and ensure your cash is best positioned for safety and yield.
Life Moves Wealth Management is a registered investment advisor offering advisory services in the States of Arizona and Indiana, and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. Information contained on this site should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.
The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.
HYPERLINK DISCLOSURE – The information being provided is strictly as a courtesy/convenience. When you link to any of the web sites provided here, you are leaving this website and assume total responsibility and risk for use of the web sites you are visiting. We make no representation as to the completeness or accuracy of information provided at these websites. Life Moves Wealth Management is not liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technology, web sites, information and programs made available through this website. Life Moves Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Life Moves Wealth Management’s web site or incorporated herein, and takes no responsibility thereof.
The fiduciary standard is one of the more misunderstood and misquoted obligations in financial services. Many financial advisors would say they take on a fiduciary duty. At the same time, many advisors are not truly bound by the standard.
The word fiduciary sounds reassuring to the potential client. It seems like anyone who takes on the licensing and title of financial advisor or financial planner would naturally be a fiduciary.
However, there are two standards under which advisors can act: the fiduciary standard or the suitability standard.
Here’s a few ways the term fiduciary has been defined:
Investopedia says: A fiduciary, in any context, is a person who is ethically or legally obliged to act in the best interests of another party.
Wikipedia says: A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons).
Nerd Wallet says: A fiduciary is an individual or organization who has a legal duty to act in the best interest of someone else. Fiduciaries have a bond of trust with clients and must avoid conflicts of interest. In finance, fiduciary financial advisors must only recommend investments and other financial planning products that are the best fit for their clients.
The CFP® Board has set the standard, literally, that requires “at all times when providing Financial Advice to a Client, a CFP® professional must act as a fiduciary, and therefore, act in the best interests of the Client.” Then, they go on to list the duties owed to clients by the CFP® professional; click here to see more.
Because there are two standards, a non-CFP® professional can choose to act under the suitability standard when providing advice. As stated above, CFP® professionals must act under the fiduciary standard at all times when providing financial advice.
Here’s a few ways the suitability standard has been defined:
Seeking Alpha says: The suitability standard requires brokers and investment advisors to recommend investments that are suitable for the client. However, they are not required to act in the best interests of the client; whereas a fiduciary is required to place their clients’ best interests ahead of their own.
Investopedia says: Broker-dealers have to fulfill what is called a “suitability obligation,” which is loosely defined as making recommendations that suit the best interests of their client. Some broker-dealers feel this is unfair as it may affect their ability to sell investment vehicles that benefit their bottom line, but all a suitability obligation means is that the broker-dealer needs to believe that the decisions they make truly benefit their client.
FINRA says: a firm or associated person have a reasonable basis to believe a recommended transaction or investment strategy involving a security or securities is suitable for the customer. This is based on the information obtained through reasonable diligence of the firm or associated person to ascertain the customer’s investment profile.
Smart Asset says: Those who conform to the suitability standard just have to make sure their recommendations are suitable, given the client’s age, goals, resources and other factors.
Can you spot the glaring differences between the fiduciary and suitability standards?!
Simply stated: it’s important to work with a fiduciary advisor because you don’t know what you don’t know.
Under the fiduciary standard, the requirement for recommendations and disclosure is significantly higher than under the suitability standard. This is not to say that advisors acting under the suitability standard are not also acting in the client’s best interest.
Listen to the full Financial Purpose podcast episode here: Episode 15 – Is your advisor a fiduciary?
Watch the video version of this episode:
Life Moves Wealth Management is a registered investment advisor offering advisory services in the States of Arizona and Indiana, and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. Information contained on this site should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.
The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.
HYPERLINK DISCLOSURE – The information being provided is strictly as a courtesy/convenience. When you link to any of the web sites provided here, you are leaving this website and assume total responsibility and risk for use of the web sites you are visiting. We make no representation as to the completeness or accuracy of information provided at these websites. Life Moves Wealth Management is not liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technology, web sites, information and programs made available through this website. Life Moves Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Life Moves Wealth Management’s web site or incorporated herein, and takes no responsibility thereof.
Have you ever been on a boat in rough waters? Or on a super fast-spinning ride? How about the back seat of a car on a mountain road. These are some of the times when you might feel motion sickness.
The same is true when going through a major change in your life or when processing grief. These times can cause financial motion sickness.
In this episode of the Financial Purpose Podcast, I discuss 5 tips for avoiding financial motion sickness, including:
1) Avoid feeling rushed into decisions
2) Revisit your financial purpose
3) Write down all the factors and expected outcomes
4) Set a specific timeline and write it down!
5) Discuss with a financial professional
Be sure to check out the video version of this episode:
Life Moves Wealth Management is a registered investment advisor offering advisory services in the States of Arizona and Indiana, and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. Information contained on this site should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.
The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.
HYPERLINK DISCLOSURE – The information being provided is strictly as a courtesy/convenience. When you link to any of the web sites provided here, you are leaving this website and assume total responsibility and risk for use of the web sites you are visiting. We make no representation as to the completeness or accuracy of information provided at these websites. Life Moves Wealth Management is not liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technology, web sites, information and programs made available through this website. Life Moves Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Life Moves Wealth Management’s web site or incorporated herein, and takes no responsibility thereof.
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