Hans Blake, CFA, CPA

Why Did Traditional Diversification Fail in 2022?

May 11, 2023 by Hans Blake, CFA, CPA

Reading Time: 3 minutes Traditional diversification failed in 2022, but why did it happen, and will it happen again? On this episode of Intelligent Money Minute, Hans Blake interviews Larry Swedroe, the head of economic and financial research at Buckingham Wealth Partners, who also co-authored 18 books. According to Swedroe, traditional diversification, which was within the 60/40 stock and bond allocation, failed in 2022. Both stocks and safe treasuries had double-digit losses, which is the first time this has happened, making it almost the worst year for a 60/40 portfolio. Moreover, longer-term treasuries lost over 20%, and the S&P was down by about 18%. Correlation between these two risk assets has been negative for the last 20 years. However, if you look at the last hundred years, the correlation was positive at about 0.2. Therefore, traditional diversification failed because correlations between stocks and safe bonds are time-varying. Swedroe emphasizes that investors shouldn’t treat correlations as a permanent number, as they are time-varying. He explains that correlations do not mean that when one asset goes up, the other goes down. It means that when one has a better-than-average return, the other one has a worse-than-average return. During the last 20 years, we had a negative correlation between stocks and safe bonds, so investors thought that when stocks got crushed, bonds would tend to do better than their average. However, that didn’t happen in 2022, making investors rely solely on safe bonds and equity bonds, which could be risky. Swedroe recommends that investors consider including other non-traditional assets that will do well in such periods. For instance, reinsurance, private floating debt, long-short equity, private real estate, and other alternatives can help dampen the risk in an investor’s portfolio. He mentioned that last year, all of the alternatives he owned were up, which helped diversify his portfolio. He advises investors to consider adding other unique sources of risk to their portfolio and not rely solely on safe bonds and equity bonds. Lastly, he says that investors must have a diversified portfolio to help mitigate these unusual time periods when correlations of traditional assets rise. Schedule a short discovery call or meeting We’ll be interviewing Larry on several podcasts regarding markets, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts. Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has since authored seven more books.

Larry Swedroe Bio

Since joining Buckingham Strategic Wealth in 1996, Chief Research Officer Larry Swedroe has spent his time and energy educating investors on the benefits of evidence-based investing. In his role as chief research officer and as a member of the firm’s Investment Policy Committee and Board of Directors, Larry regularly reviews the findings published in dozens of peer-reviewed financial journals, evaluates the outcomes and uses the result to inform the firm’s formal investment strategy recommendations. Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television shows airing on NBC, CNBC, CNN and Bloomberg Personal Finance. Larry is a prolific writer, contributing regularly to multiple outlets, including Advisor Perspectives and ETF.com. Before joining Buckingham, Larry was vice chairman of Prudential Home Mortgage and senior vice president at Citicorp. Larry holds an MBA in finance and investment from NYU and a bachelor’s degree in finance from Baruch College. Credits: This blog was written in part by ChatGPT, an AI language model developed by OpenAI. The content of this blog reflects the knowledge and opinions of ChatGPT, may or may not reflect the knowledge and opinions of Intelligent Investing, and is protected by copyright laws. Please do not reproduce or distribute without giving proper credit to ChatGPT and OpenAI.

Why Ignoring Your 401k or 403b Could Cost You More Than You Think

April 24, 2023 by Hans Blake, CFA, CPA

Are you maximizing your wealth potential? A recent study found that high-net-worth individuals have over half their wealth in IRAs and 401ks. If you’re like many investors, you may be overlooking a crucial component of your financial portfolio: your 401k or 403b accounts. These accounts, known as held-away assets, can play a significant role in your overall investment strategy.

In this blog, we’ll show you why considering these held-away assets is essential for investment diversification, risk management, and increased efficiency, and why you should consider having a professional financial advisor optimally integrate these assets into your overall portfolio and financial plan. If we reference a 401k, and you have a 403b, just keep in mind it works the same way. It is just another held-away asset.

Here’s the punch line: Intelligent Investing is able to monitor, manage, and trade 401k, 403b, or other retirement assets while you are still employed. We can do this using our Intelligrations® and it helps minimize our clients’ financial stress so they can maximize their lives.

What are Held-Away Assets?

Held-away assets are investment accounts that are held by an investor at a financial institution other than the one where their primary investment portfolio is managed. These assets typically include 401(k) plans, 403(b) plans, 529 plans, and other employer-sponsored retirement plans. Held-away assets are typically not managed directly by a financial advisor or wealth management firm, but rather are held with a separate institution, and managed by the individual employee. Despite being held separately, these assets should still be considered and incorporated into an investor’s overall financial strategy and investment portfolio, making it important for financial advisors to consider them when working with clients.

A 401k or 403b is considered a defined contribution (DC) plan. A defined contribution (DC) plan is a retirement plan that’s typically tax-deferred, in which employees contribute a fixed amount or a percentage of their paychecks to an account that is intended to fund their retirements. In addition, the sponsor company can match a portion of employee contributions as an added benefit. Employers like DC plans because the risk of the underlying investments are placed upon the employee. This is why America has shifted away from having pension plans (defined benefit plans) where they were on the hook for the underlying investment results.

Let’s take a look at some of the benefits of integrating your held-away assets into your overall financial picture.

Benefits of Integrating Your 401k

Improved Investment Diversification

Investment diversification is a key factor in reducing risk and maximizing returns in a portfolio. However, holding assets in multiple accounts at different institutions can make it difficult for investors to achieve true diversification. This is where considering held-away assets can play a crucial role. By taking these assets into account and incorporating them into an overall investment strategy, financial advisors can help clients achieve a more diversified portfolio.

Improved Tax Efficiency

When managing a portfolio, it’s important to consider not just the type of investments being held, but also the tax implications of those investments. For example, qualified accounts like 401(k)s and IRAs offer tax benefits, but also come with limitations on when and how funds can be withdrawn. On the other hand, taxable accounts (i.e., brokerage account) offer more flexibility, but may have higher tax implications. By integrating your 401k, financial advisors can assist clients in balancing the tax location of investments and create a more diverse portfolio that takes into account both qualified and non-qualified (taxable) accounts.

Improved Risk Management

If you’re like most employees, you do not know what kinds of risk there are in your 401ks at any given point in time. If you don’t get the risk right, then you may not stick with the portfolio and financial plan.

Risk management is a critical component of any successful investment strategy. By integrating held-away assets, financial advisors can help clients better manage risk and achieve their investment goals. One of the primary benefits of incorporating held-away assets into an overall investment strategy is that it allows for a more comprehensive view of your financial situation. This increased visibility can help financial advisors make more informed decisions about the allocation of investments, allowing them to manage risk more effectively.

For example, you might have a bunch of U.S. large cap equities in your brokerage account, and then you decide to buy a U.S. stock market ETF index for your 401k. By not considering both buckets, you could essentially “double-up” and have a concentrated risk position.

When financial advisors have access to all of a client’s 401k and retirement plan information, including held-away assets, they can better track investment performance and rebalance as needed to manage risk. This can be especially important in times of market volatility, when swift action may be needed to protect a client’s investments.

Increased Efficiency

Employees are often busy with their job or their family and don’t have time, nor the expertise to research 401k options or rebalance their 401ks.

Incorporating held-away assets into an overall investment strategy can streamline the investment process. When assets are held in multiple accounts at different institutions, it can be time-consuming for clients to manage their investments and keep track of their portfolio performance. By considering held-away assets, financial advisors can provide clients with a more comprehensive view of their investments, reducing the need for them to constantly monitor multiple accounts. This can save clients time and increase efficiency, allowing them to focus on other aspects of their lives.

Expertise Management

Managing a 401(k) can be a complex and challenging task for individual employees who lack the necessary knowledge, skills, and experience in trading and asset allocation. Without a proper understanding of the markets, investment risks, and the various investment options available, employees may make costly mistakes that can have a significant impact on their retirement savings.

For example, an employee may be too aggressive or too conservative in their investment decisions, leading to a portfolio that is either heavily invested in risky assets or lacking the diversification needed to mitigate risk. In some cases, employees may even miss out on investment opportunities due to a lack of knowledge or a tendency to make emotionally driven decisions based on short-term market movements.

Moreover, managing a 401(k) involves more than just selecting investment options. Employees must also monitor their portfolios, rebalance as needed, and make trades based on their long-term investment goals and risk tolerance. Without the expertise and resources of a professional financial advisor, it can be difficult for individual employees to effectively manage these tasks and make informed decisions that align with their investment objectives.

Studies have shown the shortcomings for investors managing their own 401(k)s and retirement accounts. These studies by Vanguard, Russell, and Envestnet conclude that having professional management on these accounts may generate up to 3% better performance each year net of fees.

How Our Intelligrations® Integrate Held-Away Assets

At Intelligent Investing, our passion is to minimize financial stress and maximize lives. Efficiency is a critical component of any successful investment strategy, as it allows clients to minimize their time and effort.

Previously, the tools were not available to fully manage held-away assets, which can be a significant part of clients’ overall portfolios. However, recent technology has allowed us to be able to manage these assets alongside the other assets we manage, giving us a fuller understanding of our clients’ financial picture.

Using our proprietary Intelligrations®, we now can use innovative technology to provide even better service on these accounts. Intelligent Investing is now able to make sure the entirety of our clients’ portfolios are taken care of including their 401(k), 403(b), and other retirement accounts. Our clients receive a personalized risk number that encompasses their entire portfolio in real time (assets we are directly managing, and assets that we manage in their held-away accounts (i.e., your 401(k), 403(b), etc…)

When markets get fearful or greedy, we can trade assets including the ones in their 401(k) or 403(b). We think this is a fantastic way to minimize their financial stress and maximize their lives.

Now our clients don’t have to wonder, should I be doing some rebalancing or making trades inside my 401(k), or wondering what their asset allocation should be inside their 401(k).

We can now proactively manage, monitor and trade these accounts just like your other assets with us. We are really excited about what this can do for our clients to make sure all of their assets align to their goals. This truly is intelligent investing.

Learn More About Intelligently Integrating Your 401K or 403b

Conclusion

In conclusion, considering held-away assets can provide numerous benefits for both financial advisors and their clients. It can improve investment diversification, allowing for a more comprehensive and balanced portfolio. It can also improve risk management by providing a more complete picture of a client’s financial situation and reducing the risk associated with an over-reliance on any one particular investment. Additionally, considering held-away assets can increase efficiency by streamlining the investment process, reducing the need for frequent transfers, and allowing financial advisors to more effectively track investment performance. By considering held-away assets and incorporating them into an overall investment strategy, financial advisors can help clients achieve their investment goals with greater ease and confidence.

At Intelligent Investing, we have the ability through our proprietary Intelligrations® to monitor, manage, and trade within accounts that are held-away (401k, 403b, etc…).

How Intelligent Investing Leverages Financial Technology

One of our unique factors is to leverage technology, and we have leveraged financial technology such as artificial intelligence to help craft the above blog. We have modified the results of the blog to reflect our opinions. Leveraging this technology helps us be more efficient and serve our high-net-worth clients in other ways.

If you would like to learn more about our proprietary Intelligrations®, we’d love to have a complimentary call or coffee with you. Click here to get started.

Credits: This blog was written in part by ChatGPT, an AI language model developed by OpenAI. The content of this blog reflects the knowledge and opinions of ChatGPT, may or may not reflect the knowledge and opinions of Intelligent Investing, and is protected by copyright laws. Please do not reproduce or distribute without giving proper credit to ChatGPT and OpenAI.

Don’t Be Fooled By High Yield CDs: Why the Bond and Stock Market May be the Better Option

March 30, 2023 by Hans Blake, CFA, CPA

Reading Time: 6 minutes

With the Federal Reserve’s recent increase in the federal funds rate, many banks have followed suit by raising their interest rates. This has caused mortgage interest rates to rise, which discourages borrowing, and also increases interest paid to savers. As a result, certificates of deposit (CDs) are now offering higher yields, making them an attractive option for short-term liquidity needs. While CDs may seem like a safe and secure investment choice, it’s important for investors to consider the long-term benefits of investing in the stock market. While high yield CDs are great for short-term needs, the stock market has historically provided greater yields and potential for long-term growth.

Why The Recent Yield Increases for CDs

As the U.S. central bank, the Federal Reserve tries to keep the economy steady using an important rate it can influence: the federal funds rate. This is roughly the cost of borrowing cash overnight between banks. Typically, the Fed lowers its rate to help stimulate the economy and raises it to help curb inflation. Banks generally follow the direction of the Fed funds rate in setting their rates on loans and savings accounts, including newly issued CDs. So a higher Fed rate can result in higher CD rates, but it’s not guaranteed and doesn’t happen instantly.

However, it’s important for investors to consider the long-term implications of their investment decisions and to weigh the benefits and limitations of CDs against other investment options. Remember, banks are not in the business of losing money. When they offer higher yields on CDs, banks can attract the capital they need to then reinvest the proceeds into even higher potentially yielding investments such as the stock market to maintain or increase their own profitability.

Limitations of CDs

There are three primary limitations on CDs: limited returns, lack of flexibility, and inflation risk.

Limited returns: CDs typically offer limited returns compared to other investment options, such as the stock market. While the guaranteed return on a CD may seem attractive in the short-term, it may not provide enough growth to keep pace with inflation over the long-term. This means that the purchasing power of the returns on a CD may decrease over time, making it a less attractive option for those seeking long-term growth. Investors should be and have been rewarded over time for the cost of “stock market volatility.” This higher level of risk is reflected in the equity risk premium, which is the excess return that investors expect from holding equities over a risk-free asset such as government bonds.
Lack of flexibility: CDs are typically inflexible investments, with a set maturity date and interest rate. This means that if interest rates rise after the CD has been invested in, the investor is locked into the lower rate until the CD matures. Additionally, early withdrawal from a CD typically incurs penalties, which can further reduce the returns on the investment.
Inflation risk: Inflation is a key factor that can impact the returns on a CD. As the cost of goods and services rises over time, the purchasing power of a fixed return on a CD may decrease. This means that the returns on a CD may not keep pace with inflation, which can erode the value of the investment over time. Investors should consider this risk when deciding whether to invest in a CD and should consider the potential impact of inflation on their investment goals.

Although CDs provide relative safety, real returns may become negative after inflation is factored in. Take a look at the chart below that shows the real returns CDs generated in the six 12-month periods since 1984 that followed peaks in CD rates.

When comparing 12-month returns that followed the six peaks in CD rates since 1984, average returns across four Morningstar bond fund categories outpaced the CD returns in a large majority of the instances…about 83% of the time.

If you were to have invested $250,000 in CDs vs investing the same amount in bond funds during each of those six 12-month periods since 1984, here’s what would have happened. Historically, fixed income has outperformed more than 83% of the time.

In conclusion, while CDs may seem like a safe and secure investment option, they do have limitations that investors should consider. Investors who are seeking long-term growth and flexibility may be better served by investing in other options, such as the stock market.

Advantages of the Stock Market

We’ve looked at how CDs compare to the fixed income market above, so now let’s turn our attention to comparing CDs to the stock market. Here are seven advantages of the stock market compared to CDs: higher yields, potential for long-term growth, diversification opportunities, liquidity, potential for capital appreciation and income and flexibility.

Historically higher yields: The stock market has traditionally provided higher returns compared to CDs. Over the long-term, stocks have delivered average returns of around 10% per year, while CDs typically have offered returns of 2-3%. This means that investing in the stock market has the potential to provide significantly higher returns over the long-term, especially when compared to CDs. It’s important to note that stock market returns are not guaranteed and can be subject to significant volatility in the short term, while CD yields are fixed and provide a more stable return.
Potential for long-term growth: The stock market is a highly dynamic investment option that can provide long-term growth. As companies grow and expand, their stock prices can also increase, providing investors with the potential for substantial returns. Additionally, reinvesting dividends can compound returns over time, further increasing the potential for long-term growth.
Diversification opportunities: Investing in the stock market provides investors with the opportunity to diversify their portfolios across multiple companies, industries, and even countries. This diversification helps to reduce risk, as the performance of any one stock is not likely to impact the entire portfolio. By spreading investments across a range of stocks, investors can potentially reduce the impact of any one investment on their overall portfolio.
Liquidity: The stock market is a highly liquid investment option, with stocks that can be bought and sold quickly and easily. This means that investors can access their money when they need it, without having to wait for a CD to mature. Additionally, the stock market is open for trading five days a week, providing investors with the opportunity to buy and sell stocks at their convenience. Keep in mind, the stock market’s liquidity, or the ability to sell stocks quickly and easily, does not guarantee that an investor will be able to maintain the original capital invested. Volatility in the stock market can cause significant fluctuations in stock prices, which can impact an investor’s ability to sell stocks and maintain their original capital. In times of market volatility, stocks may become less liquid, as there may be fewer buyers or a decreased demand for certain stocks. This can result in a reduction in the price of the stock, which can impact an investor’s ability to sell and maintain their original capital.
Potential for capital appreciation: One of the biggest advantages of the stock market is the potential for capital appreciation. As companies grow and expand, their stock prices can increase, providing investors with the potential for substantial returns. This potential for capital appreciation is not typically available with CDs, which offer fixed returns that are based on the interest rate.
Opportunity for income: The stock market provides investors with the opportunity to earn income through dividends. Dividends are payments made by companies to their shareholders, and investing in stocks that pay dividends can provide a reliable source of income. CDs offer fixed returns that may not be enough to keep pace with inflation over time.
Flexibility: The stock market provides investors with the flexibility to invest in a range of stocks and investment vehicles. This flexibility allows investors to tailor their investments to their specific investment goals, risk tolerance, and time horizon. CDs are typically less flexible, as they offer a fixed return that is based on the interest rate.

How Intelligent Investing Integrates Risk

Intelligent Investing believes there are typically three types of risk that every investor should know:

My ability to take on risk (assets/income/goals)
My willingness to take on risk (can I sleep at night with this much risk)
My actual risk (what kind of risk do I actually have in my overall portfolio)

Intelligent Investing is leveraging technology and years of studying investor psychology to help answer these questions. If you want to know your risk number, click the link below for a five-minute questionnaire. If you are married, we highly recommend sitting down with your spouse and taking the questionnaire together. To learn more about our risk process, click here.

How Intelligent Investing Leverages Financial Technology

If you would like to learn more about our proprietary Intelligrations™, we’d love to have a complimentary call or coffee with you. Click here to get started.

Conclusion

In conclusion, the stock market offers a range of advantages compared to CDs, especially for investors seeking long-term growth and diversification opportunities. While the stock market does come with some inherent risk, the potential for high returns and the opportunity to diversify and access professional management services make it a compelling option for many investors.

If the “risk-free” rate offered by CDs is decent, it’s worth considering the potential benefits of investing in riskier assets such as the stock market. While CDs may provide a low-risk, low-return investment option, the potential for higher returns from riskier investments such as stocks can be significantly greater over the long term.

Credits: This blog was written in part by ChatGPT, an AI language model developed by OpenAI. The content of this blog reflects the knowledge and opinions of ChatGPT. Although we have edited and modified the output to reflect our opinions, it may be protected by copyright laws. Please do not reproduce or distribute without giving proper credit to ChatGPT and OpenAI. Also, an article by John Hancock Investments: https://www.jhinvestments.com/viewpoints/investing-basics/CDs-or-bonds-Stash-cash-or-look-for-higher-potential-returns

Lessons We can Learn from SVB’s Failure

March 29, 2023 by Hans Blake, CFA, CPA

I personally am not a big fan of what is happening with banks and the recent Silicon Valley Bank headlines.

First of all, I don’t believe anyone should “manipulate” markets, especially governments. When they do….there are always unintended consequences. Let’s take a brief stroll down memory lane.

When COVID-19 hit, the government rushed in “shut down the economy.” Remember, “Only two weeks to flatten the curve”? Then two weeks became three, then four, and so on. Well, you can’t keep a country going when no one is working. So, the government decided to “stabilize” the economy and give big PPP loans to businesses and large tax credits to taxpayers.

All of this “free money” was given at a time when most of us were not able to travel and didn’t know what to do with it. Therefore, there was a building up of demand, with no supply.

This led to people staying home and play “day trader” at home by investing their excess cash into “high quality stocks” (tongue in cheek) meme stocks like Robinhood and driving up GameStop stock to hurt institutional investors.

This also led to people depositing excess cash back into the banking system…what else were they going to do with it?

As money flowed into banks during the pandemic, the bank’s deposits rose. The banks then have options on what to do with the fresh deposits? One of their options is to buy short-term Treasurys or other “safe” assets or keep the money in cash. Instead, this bank opted to buy riskier assets likely due to greed or an unprofessional lack of knowledge on how interest rates and risk management work.

But first, let’s review how bonds work…

Bond Education 101:

When interest rates rise, bond prices fall (and vice-versa), with long-maturity bonds most sensitive to rate changes. This is because longer-term bonds have a greater duration than short-term bonds that are closer to maturity and have fewer coupon payments remaining.

So, instead of buying shorter duration bonds and money market types of investments, which would have partially insulated Silicon Valley Bank and others from the risk of rising interest rates. They instead opted to buy longer-term U.S. Treasurys and government-backed mortgage securities.

The Federal Reserve

Now, let’s turn our attention briefly to the Fed.

The Fed has two primary mandates: maximum employment and stable prices.

Because of inflation getting out of control, the Fed has stepped in and has raised interest rates, which is one major tool to lower inflation. The idea is that by raising the cost of borrowing money it deters people from investing or buying things and curbs the demand for goods and services.

So, back to SVB…they took the deposits (many of which were from COVID government handouts) and invested the deposits into risky assets that get hurt more when interest rates rise. As a result, their portfolio of risky assets has gotten hammered by all the interest rate hikes.

So, when the people come back to the bank for their deposits because times are tough and inflation continues to skyrocket, the bank has to sell their portfolio at a loss. If more and more people come to the bank looking to take back their deposits…..as a bank, you have a real problem, and could have a bank run, as we saw.

A couple of key takeaways:

The governments have been stepping back in to calm down investors. The Federal Deposit Insurance Corporation has stepped in to provide the insurance coverage for depositors. I think this is a good thing and the whole point of having the insurance in the first place.

However, what I don’t like seeing is the governments stepping in to bail out the banks themselves who were practicing foolishly. Remember earlier, I am not a big fan of government intervention. There are always unintended consequences. In my opinion, if an investment is bad, it needs to fail, and those who invested in it should experience the volatility. perhaps then more due diligence will be done before investing.

Investing can be risky, and sometimes businesses will fail. Others will succeed. By governments bailing out the investors of these banks, it sends a wrong signal to those who are trying to do right. Now the government is calling for more regulation for regional banks…banks who may be getting punished because of some “bad apples.”

You can’t have your cake (upside return) and eat it too (no downside—the government will bail you out).

What should an intelligent investor do?

In times of uncertainty, it is essential to stay focused on your long-term investment goals. It is important to remember that volatility is often the price we must pay for long-term results. We believe that the current situation is no exception, and history has shown that markets have always recovered from unexpected events. Bank collapses, unexpected events, and market downturns have all happened before, and they will likely happen again. While these short-term fluctuations can be unsettling, it is essential to remember that investing is a long-term game, and the stock market has consistently delivered positive returns for patient investors who remained invested through the ups and downs.

The Future of Financial Advice: Will AI Replace Human Advisors?

February 3, 2023 by Hans Blake, CFA, CPA

Reading Time: 4 minutes

In recent years, advances in artificial intelligence (AI) have led to the development of chatbots (such as ChatGPT) and virtual financial advisors (such as robo-advisors) that are capable of providing automated financial advice. But will these AI systems be able to replace human financial advisors?

While AI can certainly automate many aspects of financial advising, there are several reasons why human advisors are likely to remain an important part of the industry.

The Importance of Human Touch and Listening

First, many people value the human touch when it comes to managing their finances. A financial advisor can provide personalized advice, offer emotional support, and answer complex questions that AI may not be able to handle. In this sense, the role of a financial advisor is much more than just providing investment recommendations – they are trusted advisors and trusted friends.

Intelligent Investing believes that finances are the number one stress in lives, and we have a passion to minimize financial stress to maximize lives. Just having a professional listen to your financial situation can relieve your financial stress.

The Use of Artificial Intelligence Is Heavily Regulated

Second, the use of AI in financial advising is heavily regulated. There are legal and ethical considerations that may prevent AI from completely replacing human advisors. For example, regulators may require that a human advisor oversee AI systems to ensure that they are operating within ethical and legal boundaries.

Humans Still have an Emotional Bent to Make Financial Mistakes

Third, financial advisors play a crucial role in helping investors navigate the complex landscape of behavioral finance.

Behavioral finance is the study of how psychological and emotional factors can impact financial decision making. Understanding these factors can help investors make better decisions, but it can be difficult to do so without professional guidance.

At Intelligent Investing, we help clients understand and overcome the biases and emotions that can lead to poor investment decisions through behavioral coaching. For example, we can help a client understand and avoid common biases like the disposition effect (the tendency to hold on to losing investments for too long) or the herding bias (the tendency to follow the crowd). We also help clients develop a financial plan that takes into account their unique goals, risk tolerance, and other factors that can influence their behavior.

Intelligent Investing Leverages Financial Technology to Improve Investor Behavior

Intelligent Investing is a boutique wealth management firm serving high-net-worth individuals and families. We leverage a lot of financial technology such as risk software, and our proprietary Intelligrations®.

In addition, Intelligent Investing provides emotional support during times of market volatility or other financial stress. It’s not uncommon for investors to feel overwhelmed or anxious during these times, and having an advisor to turn to can provide a sense of comfort and stability.

Finally, we help clients stay disciplined and stick to their investment plan by being their financial accountability partner. This can be particularly important during times of market turbulence, when investors may be tempted to make impulsive decisions based on emotions rather than logic. We do our best to provide a calming presence and help investors stay focused on their long-term goals.

Future of Financial Advice

So, what does the future of financial advising look like? While it is unlikely that AI will completely replace human financial advisors, it is possible that AI will play a larger role in the industry, augmenting the work of human advisors and making their jobs easier. For example, AI may be used to automate routine tasks, freeing up time for human advisors to focus on more complex tasks.

While AI may change the financial advising industry in the coming years, it is unlikely that it will completely replace human financial advisors. The human touch and expertise of a financial advisor is still considered valuable by many individuals, and there are legal and ethical considerations that may prevent AI from completely taking over the role.

Conclusion

In conclusion, financial advisors are valuable when it comes to investor behavior because they can help investors understand and overcome the biases and emotions that can impact financial decision making. They can provide personalized advice, emotional support, and help investors stay disciplined and focused on their goals, making them an important part of the investment process.

It is important to note that AI is not a silver bullet solution for all financial problems. It is likely that AI will play a larger role in financial advising in the future, augmenting the work of human advisors and making their jobs easier. However, while AI can certainly make some tasks easier and more efficient, there are many tasks that still require the human touch.

How Intelligent Investing Leverages Financial Technology

If you would like to learn more about our proprietary Intelligrations®, we’d love to have a complimentary call or coffee with you. Click here to get started.

Why does a positive “jobs report” sometimes hurt markets?

February 3, 2023 by Hans Blake, CFA, CPA

Reading Time: 2 minutes

Today’s financial news had headlines such as “Stocks Drop After Surprisingly Strong Jobs Growth.” Jobs growth sounds like good news, so why would financial markets suddenly drop as a result of this positive news?

Why are Jobs Reports So Important

Jobs reports are a crucial economic indicator that provide insight into the health of the labor market and the overall economy. They are closely watched by investors, economists, and policymakers, and can have a significant impact on financial markets. Despite this, it’s not uncommon for markets to decline after the release of a jobs report, even when the report shows positive employment growth. So, why do financial markets sometimes decline after a strong jobs report?

Faster-than-expected rate hikes: A strong jobs report can indicate a robust economy, which can lead the Federal Reserve to raise interest rates faster than expected. Higher interest rates increase the cost of borrowing, making it more expensive for businesses to invest, and slowing down economic growth. This can cause a decline in financial markets.
Inflation concerns: A strong jobs report can also lead to inflation concerns, which can also cause a decline in financial markets. Inflation erodes the value of money and reduces purchasing power, which can lead to a decline in consumer spending and slow down economic growth.
Overvaluation: Sometimes, financial markets may decline after a strong jobs report because the market was overvalued. This means that the market was already at a high level and there was limited room for further growth. In such cases, a strong jobs report can trigger a correction, where investors take profits by selling their investments, causing the market to decline.
Unrelated Reasons: Sometimes financial markets decline because of other factors, and it appears that it was related to the jobs report. In general, on any given day, if there are more sellers than buyers, then markets will decline, and if there are more buyers than sellers, markets will rise.

In conclusion, a strong jobs report is usually seen as a positive sign for the economy, but it doesn’t always lead to an immediate increase in financial markets. Instead, there are various factors that can cause financial markets to decline after a strong jobs report, including faster-than-expected rate hikes, inflation concerns, overvaluation, and unrelated reasons.

Intelligent Investing Leverages Financial Technology

One of our unique factors is to leverage technology, and we have leveraged financial technology such as artificial intelligence to help craft the above blog. We have modified the results of the blog. Leveraging this technology helps us be more efficient and serve our high-net-worth clients in other ways.

If you would like to learn more about our proprietary Intelligrations™, we’d love to have a complimentary call or coffee with you. Click here to get started.

Top Tips to Keep Your Financial New Year’s Resolutions

January 27, 2023 by Hans Blake, CFA, CPA

Reading Time: 2 minutes

Top Tips to Keep Your Financial New Year’s Resolutions

If you are like me, it is easy to set a bunch of new year’s resolutions for the new year, only to struggle to keep them until the end of January. Did you know that making New Year’s resolutions possibly started 4,000 years ago by the ancient Babylonians? And I bet they didn’t do a good job of keeping their resolutions either. In fact, I saw a t-shirt that said, “My new year’s resolution is to do last year’s resolution, which was also the previous year’s resolution. Today, I’d like to share with you a resource that should help you as you consider making your New Year’s resolutions. Though the following video was created last year, the truths mentioned are still true.

New Year’s Resolution Facts

This is the time of year where most people make New Year’s Resolutions. According to the University of Scranton, only 8% of those who make New Year’s resolutions actually keep them. In fact, research conducted by Strava using over 800 million user-logged activities in 2019 predicts the day most people are likely to give up on their New Year’s Resolution is January 19. Well that’s depressing. Wouldn’t it be better to just not have resolutions, that way there isn’t the associated guilt of not keeping them?

As Zig Ziglar says, “If you aim at nothing, you will hit it every time.”

I’ve found that one of the best ways to meet your financial goals is to break them down into smaller chunks.

I tend to start with writing down annual goals (including some stretch goals) that are a little beyond my reach.

Let’s say you want to pay off a $50,000 loan next year, you can break that down into quarters, months, and even paychecks. Remember, there is only one way to eat an elephant: a bite at a time.

Financial Freedom Calendar

Intelligent Investing believes in minimizing financial stress to maximize your lives. We created this financial freedom plan that includes monthly tasks as well as things to consider buying and things to avoid buying each month.

For example, the Financial Freedom calendar suggests that in January you should consider automation. Recently, I decided to automate all my bills to be paid and I can already tell you that the stress has been reduced instead of wondering, did I already pay that bill? When is that one due?

We love organizing our clients’ “financial junk drawers” and would love to organize yours as well. Feel free to share this Financial Freedom Plan with others.

A Resolution You Can Keep

One last resolution to consider…becoming more financially educated. You can start by simply subscribing to our Intelligent Insights Newsletter. You can also subscribe to our Intelligent Money Minute podcasts.

If you are ready to get some accountability partner and are looking for a new financial advisor, we’d love to have a complimentary call or coffee with you. Click here to get started.

Approaching Retirement? Here Are 6 Tips to Consider

January 19, 2023 by Hans Blake, CFA, CPA

Reading Time: 4 minutes

As you approach retirement, you are often overwhelmed by the vast number of decisions that need to be made. When should I retire? How much do I need when I retire? How should I roll over my 401k? What am I going to do in retirement? etc… It can be either a procrastinating or paralyzing time in your life as you contemplate the choices to be made. There are several critical “once-in-a-lifetime” decisions that are made within the 10 years leading up to retirement. These unique decisions can have life-lasting impacts, and we don’t want you to have a “regret period” in retirement. Here are six helpful considerations as you approach retirement:

1. Reassess Your Living Expenses

A step you will probably take several times between now and retirement is thinking about how your living expenses could or should change. For example, while commuting and other work-related costs may decrease, other budget items may rise. Healthcare costs, in particular, may increase as you progress through retirement.

Try to estimate what your monthly expense budget will look like in the first few years after you stop working. And then continue to reassess this budget as your vision of retirement becomes a reality. According to a recent survey, 38% of retirees said their expenses were higher than expected. Keeping a close eye on your spending in the years leading up to retirement can help you more accurately anticipate your budget during retirement.

2. Consider All Your Income Sources

First, figure out how much you stand to receive from Social Security. The amount you receive will depend on your earnings history and other unique factors. You can elect to receive benefits as early as age 62, however, doing so will result in a reduced benefit for life. The longer you wait, the larger it will be.

Next, review the accounts you’ve earmarked for retirement income, including any employer benefits. Start with your employer-sponsored plan, and then consider any IRAs and traditional investment accounts you may own. Try to estimate how much they could provide on a monthly basis. If you are married, be sure to include your spouse’s retirement accounts as well. If your employer provides a traditional pension plan, contact the plan administrator for an estimate of that monthly benefit amount as well.

Do you have rental income? Be sure to include that in your calculations. Might you continue to work? Some retirees find that they are able to consult, turn a hobby into an income source, or work part-time. Such income can provide a valuable cushion that helps retirees postpone tapping their investment accounts; giving the assets more time to potentially grow.

3. Pay Off Debt, Power Up Your Savings

Once you have an idea of what your possible expenses and income look like, it’s time to bring your attention back to the here and now. Draw up a plan to pay off debt and power up your retirement savings before you retire.

Entering retirement debt-free including paying off the mortgage will put you in a position to modify your monthly expenses in retirement if the need arises. If you don’t, you’ll have less of an opportunity to scale back your spending adding strain to your retirement plan.

In these final few years before retirement, why not save and invest as much as you can in your employer-sponsored retirement savings plan and/or IRA? Aim for maximum allowable contributions, and if you are 50 or older, you can take advantage of catch-up contributions, which enable you to contribute an additional income to your 401k plan and IRA.

4. Manage Taxes

As you think about when to tap your various resources for retirement income, remember to consider the tax impact of your strategy. For example, you may want to withdraw money from your taxable accounts first to allow your employer-sponsored plans and IRAs more time to potentially benefit from tax-deferred growth. Keep in mind, however, that generally you are required to being taking minimum distributions from tax-deferred accounts the year you turn 70½.

If you decide to work in retirement while receiving Social security, understand that the income you earn may result in taxable benefits. IRS Publication 915 offers a worksheet to help you determine whether any portion of your Social Security benefit is taxable.

If leaving a financial legacy is a goal, you’ll also want to consider how estate taxes and income taxes for your heirs figure into your overall decisions. Managing retirement income in the best possible tax scenario can be extremely complicated. Intelligent Investing strives to alleviate this financial stress by sharing and taking some of the burdens off you. Our financial planning provides probability statistics that allow our clients to know the success rate of their retirement plan.

5. Account for Health Care

As you age, the portion of your budget consumed by health-related costs (including both medical and dental) will likely increase. Although original Medicare will cover a portion of your costs, you’ll still have deductibles, copayments, and coinsurance. Unless you’re prepared to pay for these costs out of pocket, you may want to purchase a supplemental Medigap insurance policy.

Another option is Medicare Advantage (also known as Medicare Part C), which allows Medicare beneficiaries to receive health care through managed care plans and private fee-for-service plans.

Also think about what would happen if you or your spouse needed home care, nursing home care, or other forms of long-term assistance, which Medicare and Medigap will not cover. Long-term care costs vary substantially depending on where you live and can be extremely expensive. For this reason, people often consider buying long-term care insurance. Policy premiums may be tax deductible, based on a number of different factors.

6. Ease the Transition

These are just some of the factors to consider as you prepare to transition into retirement. Breaking the bigger picture into smaller categories and using the years ahead to plan accordingly may help make the process a little easier.

If retirement planning seems overwhelming, We would love to help. We love serving our high-net-worth clients by minimizing financial stress and maximize their lives using our proprietary Intelligrations™.

You can start by subscribing to our Intelligent Money Minute podcasts or by subscribing to our Intelligent Insights blogs.

Better yet, if you are finally ready to get some professional help, and want to collaborate or outsource this to qualified fiduciary professionals, please click here to reach out for a complimentary call or coffee. We’d be honored to spend some time with you to help you sort out your “financial junk drawers.”

Source: Broadridge Financial Solutions, Inc.