We know there is uncertainty, as this is uncharted water for the world. While pandemics are not new, this particular virus strain is new, and as such, we are simultaneously trying to learn and understand while developing a response and treatment.
The uncertainty is being felt around the globe, and it is unsettling on a human level.
Unknowns are unsettling. Lack of understanding can lead to fear, fear can lead to panic and panic can lead to poor decision making and reactionary behaviors. The markets are no more immune to this virus than humanity.
With this in mind, our firm would like to share an internal philosophy that we adopted years ago. We see our firm as an “ark” providing shelter to our clients to weather the storms. But, what is an ark? If you remember the story of Noah, the ark was a haven that allowed for shelter from the storm. It was a vessel that did not have a rudder or a propeller or even an oar. It was simply a refuge. A place to wait and be safe, while minding the ship.
This is how we view our firm. While we cannot control the pandemic, we will be a refuge while weathering “the storm”. We will mind the ship and provide counsel and services with your best future in mind. We will be a sounding board and a strong shoulder to help bear the load. We will do our best to keep your money working for you.
The thing about storms is that they eventually end. This will end. Just as the ark had to “wait and weather the storm”, so do we. However, when the storms and floods passed, those who emerged from the ark found themselves surrounded by newness and a hopeful promise for a bright future. We will continue to strive to place our clients in the greatest position of strength for a hopeful tomorrow.
In addition, we have attached our current office meeting contingency plan. Until further notice, we will not be conducting in-person meetings to protect the health and well-being of our employees and clients.
As the day on Monday, March 16th came to a close – we were reminded that storms do pass with a beautiful rainbow over our great city of Boise.
Please call with any questions or concerns. Stay healthy and strong. This too shall pass.RW Meeting Contingency Plan - March 2020
This past Monday – March 9 – was the eleventh anniversary of the crescendo of global panic that marked the bottom of the bear market of 2007-09.
It is a thing of the most wonderful irony that the world has elected to celebrate this iconic anniversary with – you guessed it – another epic global panic attack.
The morning of March 9th the opening level of the S&P 500 was 2,764, down over 18% from its all-time high, recorded on February 19. Declines of that magnitude are fairly common occurrences – indeed the average annual drawdown from a peak to a trough since 1980 is close to 14%. But such a decline in barely a month is noteworthy, not for its depth but for its suddenness.
As we all know by now, the precipitants of this decline have been (a) the outbreak of a new strain of virus, the extent of which can’t be predicted, (b) the economic impact of that outbreak, which is equally unknown, and (c) most recently, the onset of a price war in oil. (That last one is surely a problem for everyone involved in the production of oil, but it’s a boon to those of us who consume it.)
The common thread here is unknowability: we simply don’t know where, when or how these phenomena will play out. And in our experience, the thing in this world that markets hate and fear the most is uncertainty. We have no control over the uncertainty; we can and should have perfect control over how we respond to it.
Or, ideally, how we don’t respond. Because the last thing in the world that long-term, goal-focused investors like us do when the whole world is selling is – you guessed it again – sell. Instead, we encourage you to focus on the sale prices of The Great Companies of America and the World. They’re enjoying markdowns which we historically don’t see more often than about one year in five, on average.
On March 3, the erudite billionaire investor Howard Marks wrote, “It would be a lot to accept that the US business world – and the cash flows it will produce in the future – are worth 13% less today than they were on February 19.” How much more true this observation must be a little over a week later, when they’re down over 20%.
This too shall pass.
Over the last week concerns over the spread of the coronavirus and its potential economic impact have caused global stocks to drop and interest rates to fall. As of February 27th, the S&P 500 Index has declined approximately 12% from its recent all-time high, causing the financial media to ring the “correction territory” bell.
We do not claim to have any idea how far this outbreak will spread, nor how many lives it will claim, before it is brought under control. We’re reasonably certain that many (or perhaps most) of the world’s leading virologists and epidemiologists are working on it and believe that their efforts will ultimately succeed. This of course is our opinion.
But if the history of similar outbreaks in this century is any guide, this would seem to be a reasonable hypothesis.
We draw your attention to:
- SARS in 2003-04, also originating in China
- The bird flu epidemic in 2005-2006
- In 2009, a new strain of swine flu
- The Ebola outbreak in the autumn of 2014
- The mosquito-borne Zika virus outbreak in 2016-17
On that first day of the litany of epidemics cited above, the S&P 500 closed at 855.70. Seventeen years and six epidemics later (including the current one) the Index is fairly close to three and a half times higher.
Because markets hate uncertainty there has been and will likely continue to be higher volatility in the short-term. However, it is doubtful that the long-term viability of companies like Exxon and Chevron, or Microsoft and Amazon, or Nestle and Coca-Cola are in danger. Despite the inherent volatility, we believe ownership in companies like those cited provide the best opportunity to protect your purchasing power and grow your families wealth over time.
Our advice is to remain focused on that which remains in our control: asset allocation, diversification, and rebalancing. For our retirees, we have built your fixed income portfolios to provide a minimum of 5 – 7 years of spending without the need to sell stocks. This allows us time to withstand stock market volatility. For accumulators, we will continue to dollar cost average into your diversified portfolios, perhaps accelerating buys as the market drops further.
We believe the coronavirus scare is another example of the market overreacting and therefore a buying opportunity for investors. Warren Buffett famously said, “Be fearful when others are greedy and greedy when others are fearful.” You may see activity in your accounts in the days and weeks ahead as we look to take advantage of this opportunity.FT Cornoavirus Economic Impact
A plan fiduciary plays an important role in the organization’s financial health. Not only do they oversee the fiduciary process, but they identify and serve the best interests of a retirement plan’s participants and beneficiaries. Here are 10 important responsibilities to keep in mind.
1. Limit liability: As a fiduciary, it is imperative that you understand ERISA so you can keep yourself and your business safe from liability.
2. Find the right plan provider: Finding a retirement plan provider is much more complicated than many realize.
3. Keep costs low: No matter how big your business’s budget, always monitor fees to ensure you are getting the best deal.
4. Oversee plan performance: Once a retirement plan is in place, continuously monitor its performance.
5. Educate plan participants: Regardless of position and hierarchy, employees may come to you asking about plan options. What should you say?
6. Stay informed: Your role is to know more about your business’s retirement savings plan than everyone else, so education is vital.
7. Avoid personal gain: As a fiduciary, it’s important to distance yourself from any situation that could be perceived as personal gain from the retirement plan.
8. Diversify investments: The investment options offered in your plan should be diversified. This limits financial risk and helps balance risks and rewards.
9. Monitor participant satisfaction: Evaluate employee satisfaction with the plan. Follow up on complaints, and regularly gauge the plan needs to determine the right time for change.
10. Ensure employees understand their options and monitor their satisfaction levels.
This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation. This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.
Much has been made of the current state of the American worker as it pertains to their retirement savings. According to a recent study by the General Accountability Office, 29% of Americans 55 and older do not have any retirement savings or pension plan and those who have saved are woefully behind with 55-64 year olds averaging $104,000 in retirement assets.1
The bleak outlook can largely be attributed to a lack of education when it comes to retirement planning – and more specifically investment allocation. With a growing number of millennials feeling ill equipped to make investment related decisions – even within their own retirement plans, the numbers prove that ignorance is not bliss. 61% of millennials say they want to invest but are deterred because they don’t know how.2 These numbers alone should serve as a call to action for younger workers who are increasingly finding themselves behind the eight ball when it comes to saving for retirement. A sound, long term, roadmap to retirement can be centered on three key areas.
Develop healthy financial habits
In a society that has become increasingly driven by social media it is very easy to fall prey to a “keeping up with the Jones1” philosophy toward spending. Do you have “friends” that tweet and share every purchase and activity in their lives? Believe it or not, this subconsciously drives the temptation to spend on things we do not need or want, to impress people we don’t even like! Finding a balance and delaying gratification on purchases can single handedly make or break your financial wellbeing and it starts with making tough budgeting decisions.
Live below your means.
Try contributing an extra one or two percent to your company’s retirement plan or open up an IRA. You won’t miss the contribution and your standard of living will adjust accordingly. Seek to live below your means today to ensure a strong financial future tomorrow.
Reduce your debt.
The average American household carries a whopping $15,762 in credit card debt. According to a study this year, the average household is paying a total of $6,658 in interest per year3 – translating to lost dollars that could be pumped into retirement savings and wealth accumulation. In some situations debt, such as a mortgage or a student loan, can improve one’s financial position long term – however, credit card debt in particular carries the highest interest rates and should be paid off as quickly as possible. Try working with an independent financial planner if necessary, to consolidate debt and come up with a game plan to attack it head on.
At the end of the day there is no magic bullet that can singlehandedly solve the retirement shortfall for millions of Americans. Only you can take steps to educate yourself and make prudent, financially savvy choices in your day to day life which will translate in a significantly healthier financial standing. Don’t just hope that the retirement picture in your life becomes clearer as the day gets closer, because the opposite is true. Take measured steps to build confident savings and investment solutions for your household by starting today!
Kameron Jones, Senior Advisor
As Americans look into the future and towards retirement, many understand that maintaining their health will be
an important part of their overall quality of life after they stop working. However, uncertainty around healthcare
costs – both now and in retirement – is a major financial worry among Americans preparing for retirement. So
how can you help your workers reduce financial anxiety about retirement preparedness and increase the
likelihood that they will be able to meet their healthcare costs in retirement?
Health savings accounts (HSAs) present retirement plan sponsors a unique opportunity to address both the
wealth and health of employees planning for retirement. HSAs are a popular way for individuals to save for
medical expenses while reducing their taxable income – in effect, using their HSA as a long-term investment
vehicle. And though HSAs typically are introduced to employees as part of their high deductible healthcare plans
(these are the only plan types which currently offer HSAs), many recordkeepers are beginning to offer them in an
integrated platform where that can be reviewed alongside retirement savings.
Here are four reasons to integrate HSAs into your retirement plan offering:
1. Health Savings Accounts Address Concerns About Future Costs
In today’s retirement plan marketplace, holistic approaches increasingly feature a multi-faceted
program that offers numerous features, all aimed at improving retirement readiness. While in the past it
was sufficient to offer employees a straight-forward savings vehicle and trust that they would responsibly
go about making contributions, today’s plan sponsors have seen that the introduction of sophisticated
plan design features such as automatic enrollment, automatic escalation and financial wellness
consultation go a long way towards boosting outcomes for their employees. With healthcare being such
an important factor in quality of life, we see HSAs as one more tool you can wield in improving overall plan
HSAs are designed to assist individuals in paying for healthcare expenses both now and in the future.
Today, a healthy 65-year-old male retiree can expect to pay $144,000 to cover healthcare expenses
during retirement, and many studies show that we can expect health costs to rise at a rate that outpaces
inflation, meaning this number will only grow over time. As HSAs are designed to provide a savings vehicle
dedicated to covering qualified healthcare expenses, their ability to grow contributions tax-free helps
defray the effect of future cost increases.
2. Health Savings are Triple Tax-Free Now and in Retirement
HSAs are unique in that they are designed specifically for healthcare expenses yet act more like an
individual retirement account (IRA). HSAs are the only triple-tax advantaged savings vehicle of its kind.
Participants with an HSA make contributions with pre-tax income, earnings and interest grow tax-free,
and withdrawals are tax-free when used to pay for qualified medical expenses. Once in retirement, HSAs
include no minimum required distributions and no Social Security or Medicare tax on contributions.
3. HSAs Can be Easily Integrated into an Existing Plan
You may be concerned about the administrative burden of incorporating an HSA into an existing plan, but in reality it can be done with little added administrative effort. In fact, it is possible for you to reduce administrative complexities with a single platform for both defined contribution plans and HSAs (as mentioned previously, many major recordkeepers offer their own HSA programs). With one portal that handles enrollment, retirement plan management, financial wellness programs, and HSA management, participants and sponsors can enjoy the added benefits of having these additional features seamlessly incorporated into their existing accounts. To improve the overall implementation of HSAs into a plan, we also encourage plan sponsors to incorporate HSA education into the front end of employee training, alongside other educational efforts for defined contribution plans and healthcare benefits.
4. Health Savings Accounts can Boost Employee Recruiting and Retention
If American workers are as anxious about medical expenses in retirement (and financial wellness in general) as surveys indicate, then a holistic retirement plan offering can be leveraged for marketing to potential new hires. A retirement plan that alleviates an employee’s concerns about the future will help employers retain existing workers and help attract new talent. By integrating an HSA into a robust retirement plan, your company signals that it understands the challenges to retirement preparedness and is ready to offer benefits that do the most to prepare them. The HSA account also rolls over in the same way a retirement account does, even if they choose to change jobs later on, making the benefit to the employee portable.
With the ultimate goal of providing a holistic retirement plan that prepares participants for financial security in retirement, you may want to consider adding HSAs to your plan offering. As a unique vehicle designed to reward savers with triple-tax benefits, HSAs can be seamlessly integrated into existing retirement plans while helping employee recruitment and retention. With healthcare costs continuing to increase with each passing year, HSAs provide a welcome sense of financial preparedness for Americans planning for their retirements
About the Author, Kameron Jones
Kameron provides extensive knowledge of the provider marketplace to help reduce plan-related costs and improve plan-related services. He has assisted hundreds of mid- to large-market 401(k), 403(b), 457(b), 401(a), NQDC, Cash Balance, and DB plans. Kameron was also voted as a National Association of Plan Advisors (NAPA) top advisor under 40. Kameron graduated from the University of Pennsylvania with a Bachelor of Arts in philosophy, political science and economics and played outside linebacker on UPenn’s football team.
Over the course of a summer, it’s not unusual for the stock market to be a topic of conversation at barbeques or other social gatherings.
A neighbor or relative might ask about which investments are good at the moment. The lure of getting in at the right time or avoiding the next downturn may tempt even disciplined, long-term investors. The reality of successfully timing markets, however, isn’t as straightforward as it sounds.
Outguessing the Market is Difficult
Attempting to buy individual stocks or make tactical asset allocation changes at exactly the “right” time presents investors with substantial challenges. First and foremost, markets are fiercely competitive and adept at processing information. During 2018, a daily average of $462.8 billion in equity trading took place around the world.1 The combined effect of all this buying and selling is that available information, from economic data to investor preferences and so on, is quickly incorporated into market prices. Trying to time the market based on an article from this morning’s newspaper or a segment from financial television? It’s likely that information is already reflected in prices by the time an investor can react to it.
Dimensional recently studied the performance of actively managed mutual funds and found that even professional investors have difficulty beating the market: over the last 20 years, 77% of equity funds and 92% of fixed income funds failed to survive and outperform their benchmarks after costs. 2
Further complicating matters, for investors to have a shot at successfully timing the market, they must make the call to buy or sell stocks correctly not just once, but twice. Professor Robert Merton, a Nobel laureate, said it well in a recent interview with Dimensional:
“Timing markets is the dream of everybody. Suppose I could verify that I’m a .700 hitter in calling market turns. That’s pretty good; you’d hire me right away. But to be a good market timer, you’ve got to do it twice. What if the chances of me getting it right were independent each time? They’re not. But if they were, that’s 0.7 times 0.7. That’s less than 50-50. So, market timing is horribly difficult to do.”
Time and the Market
The S&P 500 Index has logged an incredible decade. Should this result impact investors’ allocations to equities? Exhibit 1 suggests that new market highs have not been a harbinger of negative returns to come. The S&P 500 went on to provide positive average annualized returns over one, three, and five years following new market highs.
Exhibit 1. Average Annualized Returns After New Market Highs
S&P 500, January 1926–December 2018
Outguessing markets is more difficult than many investors might think. While favorable timing is theoretically possible, there isn’t much evidence that it can be done reliably, even by professional investors. The positive news is that investors don’t need to be able to time markets to have a good investment experience. Over time, capital markets have rewarded investors who have taken a long-term perspective and remained disciplined in the face of short-term noise. By focusing on the things they can control (like having an appropriate asset allocation, diversification, and managing expenses, turnover, and taxes) investors can better position themselves to make the most of what capital markets have to offer.
. In US dollars. Source: Dimensional, using data from Bloomberg LP. Includes primary and secondary exchange trading volume globally for equities. ETFs and funds are excluded. Daily averages were computed by calculating the trading volume of each stock daily as the closing price multiplied by shares traded that day. All such trading volume is summed up and divided by 252 as an approximate number of annual trading days.
We know you’re enjoying summer! But how’s your retirement plan doing?
Summer can serve as a preview of your retirement — long days in the sun and spending time with your loved ones. So what better
time to do a routine check-up on your retirement plan? Protect your loved ones and ensure you are keeping up to date with your
retirement plan with our summer homework assignments.
- Update or Assign Beneficiaries
Did you experience a major life change this year, such as marriage, divorce, birth or death? Consider updating your
beneficiaries when you go through a major life change.
- Review Cyber Security Best Practices
Retirement plans are a major target for cyber attacks. Retirement plan participants often have weak passwords and can
unknowingly fall for phishing schemes. Educate yourself on cyber security best practices to ensure you are keeping your
information and assets safe.
- Increase Contributions
Raise your plan contributions once a year by an amount that’s easy to handle, on a date that’s easy to remember —for example,
2 percent every Fourth of July. Thanks to the power of compounding (the earnings on your earnings), even small, regular
increases in your plan contributions can make a big difference over time.
- Revisit Asset Allocation
Rebalance your portfolio back to the original asset allocation by selling assets that have outperformed and use the proceeds
to those that have lagged behind. This discipline ensures you adhere to your investment strategy based on your risk
tolerance and time horizon.
- Remember Sunscreen!
Wearing sunscreen reduces your risk of developing skin cancer, it keeps your skin looking younger and protects you from UVB
rays. What other reasons do you need to wear it?