Wealth Management Blog

Mr. or Mrs. President?

By JJ Burns

November 4, 2016

Everyone is afraid of something.  It’s true.  The visceral reaction to threats, real and imagined, has driven human behavior for millions of years.  As time has passed, our species has evolved from fearing simple threats from predators and harsh climates to fearing more sophisticated threats.  We have mostly conquered our ‘lizard brain.’  The lizard brain (so called because it is believed that reptiles survive almost solely on its impulses) is the amygdala, which controls emotions such as fear, our survival instincts, and memory.  Controlling fear is how our ancestors emerged from the cave and conquered predators and darkness.  Now, millennia later, what are we most afraid of?  According to Chapman University’s 2016 ‘Survey of American Fears,’ Americans are most afraid of government corruption than any other of the additional 79 topics in the survey.  That’s right: we are more afraid of our own government than we are of death, disease, loneliness, war, climate change, going bankrupt, snakes and public speaking.  This year, it appears, we are also afraid of our future.

Some of our recent discussions with clients have surfaced their biggest fear: the outcome of our national elections on November 8.  As we might expect, investors are worried about the future because of heightened dislike for many of the candidates and an uncertain future for the economy, the markets, and their portfolios.  Their collective lizard brain says sell stocks and hide, much like our primitive ancestors, and emerge when the perceived threat has passed.  As we often say, we understand this reaction.  We know that the markets, like people, hate uncertainty.  We also know that managing our emotions – especially conquering fear – in trying times is the key to success in any endeavor.  So it is today.

Remember that the market has weathered many crises since 1900: two world wars, the Roaring ‘20s, the Great Depression, the first big market crash in 1929, oil shocks, wars in Korea, Vietnam and the Middle East, the 1987 flash crash, the Tech Bubble, high inflation, low inflation, terrorist attacks on U.S. soil, the Financial Crisis, a government debt downgrade, landing a man on the moon, the Ebola and Zika scares, ISIS, the beginnings of climate change, banking crises, the rise of the internet, the rise—and fall—of communism, and so on.  Through all these events, capitalism has survived and adapted and moved forward.  We believe it will again regardless of Tuesday’s election results.

Here’s our brief summary of the main issues to consider when thinking about the election and the post-election markets:

  • The U.S. economy is chugging along in a low-growth/low-inflation environment.  A recession is not on the IMMEDIATE horizon, interest-rate hikes are expected to be modest and drawn out, and the job and housing markets are stable.  Preliminary Q3 GDP came in at +2.9%.  As we write this, October’s payrolls number was good and included prior-month positive revisions, unemployment dropped to 4.9% and wages showed their highest year-over-year increase since 2009 (ending at +2.8%).  Even market news is good: S&P 500 earnings results thus far for the third quarter of 2016 are showing improvement over the past six quarters.  These data show expected improvement for the current quarter and into 2017.

  • The Fed is expected to use the calm after the election storm to raise short-term rates by 0.25% in December, with two additional +0.25% hikes expected next year.
  • The markets, and a narrow majority of the electorate, appear to favor the Democrat candidate.  Mrs. Clinton has proffered a platform of change, but nothing that we see as too radical.  We expect that, should she win and the U.S. Senate change control, that modest incremental legislation will be enacted to (among other things) change the tax code, work on regulatory and immigration reform and review U.S. trade pacts.  The markets have, and should continue to, respond modestly.
  • Many of our clients have stocks and bonds in their portfolios.  The stocks are expected to provide long-term growth to keep ahead of inflation; the bonds provide income and act as ballast when markets are especially volatile and investors seek safety.  Adjusting this mix by using rebalancing opportunities is our best tool to keep our strategic focus and avoid costly tactical mistakes.  This is what we do.

Investors need to battle their lizard brains and keep their focus on the future, not the short term.  The initial fear trade is to sell and go to cash; a tried and true short-term palliative, selling stocks and sitting in cash is good for short-term peace of mind but not a long-term planning strategy.  Our clients know that we believe in globally diversified portfolios, that we focus on the long-term, and consider strategy over tactics to ensure that portfolios are built to stand the weather of time rather than simply avoid today’s storm.

As always, we appreciate your confidence and would be happy to discuss any of the issues raised here or answer any questions you may have.

Who’s Picking Up the Tab?

By JJ Burns

September 27, 2016

Have you ever been out to a great dinner, or on a great vacation, or perhaps at a great show, really enjoying yourself, yet knowing in the back of your mind that the bill for this great experience would come due, and it might be a doozy? Think about that experience and feeling, apply it to today’s markets, and ask yourself: how will investors feel when it’s time to pay the bill?

We’re not writing this to imply that a market crash akin to the Financial Crisis is just around the corner; far from it. We see ourselves in a slow-growth world that is a result of the experimental monetary policy by governments and central banks (CBs). They are manipulating interest rates without providing comparable fiscal stimulus to recover from a financial downturn, and as a result, these easy rate policies around the globe have lulled investors into a false sense of complacency.

Just looking at this small sampling of market returns gives us some idea about the effects of the CB’s policy of low rates:

During the period when the U.S. Fed embarked upon its Quantitative Easing programs (QE) and Operation Twist, the stock and bond markets earned much of the total returns since the low of the Financial Crisis. Other central banks, particularly in Europe, chose different paths that focused initially on austerity and had less robust results (e.g. a ‘double-dip’ recession in the U.K.). Across the globe, however, it appears that the ability for continued monetary policy stimulus to drive growth is limited. We are left with stagnant growth levels, negative interest rates in many countries, market uncertainty and growing populist movements that promote nationalism over growth.

Central banks are not united in policy goals, governments and corporations are not engaging in enough (if any) fiscal stimulus, and the world’s growth engine for many years—China—is retrenching and transforming. All of this leads to a suspicion that stocks and bonds are overpriced, particularly on the part of income-seekers driving money into utilities and other high-dividend stocks. This is clearly an important inflection point. We must accept that issues that have become political ‘hot button’ talking points—global trade, immigration policy, tax reform and populism—are perhaps now more important drivers of future growth than furthering the low interest rate policies that have dominated the past seven years.

Investors have asked us, are we worried about a bear market? A combination of several indicators turning bearish would cause us concern, such as much higher interest rates and inflation, an inverted yield curve and stock overvaluation. Recent market gyrations seem to be overreactions at this point; U.S. economic data do not currently predict a recession or an inflationary environment that would require the Fed to quickly raise rates. This does NOT mean valuations are at relative discounts—low rates are pushing some investors to equities, and areas such as utilities will be the first to sell off as rates move.

We’re seeing a lot of investment suggestions for private equity, private or second-market debt funds, real assets and options-hedged equity products. All are expected to provide better risk-adjusted returns than conventional stocks and bond portfolios. Our evidence doesn’t support many of these ideas. As we learned eight years ago, and can see in the table above, the traditional relationships between stocks and bonds provides the insurance and low correlation we need. In times of crisis, U.S. Treasurys and public-market liquidity (such as U.S. large-cap equities) are the prized investments.

Our clients know, too, that we preach diversification, patience and a focus on the far horizon, not the next step. The market data we review indicate that the U.S. economy is still healthy (but not robust), and few signs of the high rates, high inflation, excessive stock valuations or a recession are present. We expect some volatility in the period ahead, but our long-term growth outlook remains positive.

Are Your Politics Influencing Your Investment Strategies?

By JJ Burns

August 31, 2016

Whether you’re in the Trump or Hillary camp—or for the possible candidate in between—some have been asking, ”Are there financial strategies to take to protect your investments before, during and after election day comes around?”

We understand that it’s fun to banter with your friends around the dinner table about the merits of this or that candidate, what’s even more interesting is to examine how investors react to political change. Behavioral researchers have found over the years that if an investor’s favored candidate becomes elected, the investor experiences an increased market confidence and tends to take on more portfolio risk. Conversely, if the candidate-of-choice loses, investors expect fallout from the new administration and look for investment safety. 

Take the recent Brexit vote for example. Investors needed to be prepared for market risks if the vote went either way. Thankfully it didn’t create the significant market losses many predicted, but the impending vote had people on edge for a bit.

In the case of the U.S. presidency, researchers from the University of Miami, Brigham Young University and the University of Colorado at Denver conducted a study on how politics impacted investor behavior, reviewing three presidential-election years from 1991 through 2002.

Their behavioral research found that after the 1992 and 1996 elections when Bill Clinton won the presidency, Democratic voters tended to invest more in domestic stocks and to stay invested for a longer time. Conversely, Republicans felt less confident at that time about the economy and invested in foreign stocks and traded more frequently.

Then when George W. Bush won the presidential election in 2000, Republican voters did the same thing the Democrats did when their party representative was in office—they took on more risk, invested in domestic companies and traded less frequently.

The outcome from the researchers’ study was that both Republican and Democratic voters seemed to be influenced more by their political beliefs to help guide their investment choices than by listening to the logic and the advice of a financial advisor.

Voting—like investing—is a very personal act. And there’s no right or wrong way to cast your vote. The only thing that’s certain is it’s going to be quite a journey leading up to November.

The takeaway from studying investor behavior during election seasons is identical to why many investors fail to achieve reasonable returns…their own behavior is their most significant risk. We believe that investors who have a “true” diversified asset allocated portfolio will experience the variable returns from each asset class. Don’t be swayed by popular opinion or what you hear from the media about a certain candidate’s platform to make immediate portfolio changes.

Your financial situation is unique and needs an individual review to cover all potential scenarios. No matter what is happening in the world, a solid financial strategy should have the foundation of objective analysis. Whether you lean toward the Republican, Democratic, Independent—or any other political philosophy—our role is to help you create a solid financial plan.

Five Common Financial Marriage Mistakes to Avoid

By Anthony LaGiglia

July 27, 2016

“Till death do us part” has now been replaced with “till debt do us part.” Therapists, divorce lawyers and financial professionals often cite money issues as a main contributor to the demise of a marriage. But it doesn’t have to be the case.

While everyone’s situation is different, there are some common financial issues that can derail a relationship.

1. Opposing values

If one partner wants to acquire a lot of possessions or live a certain lifestyle—expensive cars, the latest fashions, luxurious vacations and regular visits to the top restaurants—and the other partner prefers a more toned-down existence, then there may be areas of conflict. It doesn’t matter how much net worth you have—materialism can decrease happiness.

Researchers at Brigham Young University and William Patterson University found in a study that in one in five of 1,734 couples, both partners admitted a strong love of materialistic things. While these couples had financial means, money was often a bigger source of conflict for them. Not surprisingly, these couples were rated at the bottom of the survey’s happiness scale.

2. Not seeing eye-to-eye about money

This differs from values, as it’s more of a day-to-day allocation of funds. According to experts, foolishly spending money is the number-one financial cause for divorce. Of course, “foolish” is a matter of opinion.

Some spouses may want to save to meet goals such as paying for college, buying a second home or investing in a business. While others believe that spending money on hobbies such as gambling, restoring cars or remodeling homes is a good way to relax or to increase income. The take-away is to decide what amount of money you, as a couple, are comfortable allocating toward discretionary spending.

3. Maintaining traditional relationship roles

Gone are the days when women turned the earnings and financial planning responsibilities over to their partners. Many women earn more than their husbands; some wives—or husbands—choose to delay an income to care for their children.

The bottom line: Someone in the household is usually more predisposed to managing financial matters—and if no one is, consider working with a Certified Financial Planner. There are also many online tools you can use to help keep track of your finances.

4. Having different money philosophies

Often in a marriage, one is a spender and the other is a saver. It’s not a deal breaker, but these differences can cause tension in a relationship. It is not uncommon to see financial opposites gravitate toward each other.

Recognizing this and consulting a neutral third party can help alleviate tensions. Perhaps it means allocating a certain amount for the spender to have each month and an amount that the saver feels comfortable with, as well as a common fund that the couple contributes to that meets mutual goals.

5. Neglecting to plan

As John Lennon said, “Life is what happens to you while you’re busy making other plans.” Things happen—and sometimes you look back and wonder where the years went.

Marriage, kids, houses, businesses, caring for loved ones, health issues—no one is immune from life’s challenges. Which means having a plan as a couple—from the day you say “I do” is key. If you have significant assets, consider a prenup from the start. If you forgo a prenup, consult with a financial planner to develop a roadmap for moving forward.

Money is a difficult subject for most people. Combining funds, philosophies, and spending and savings habits can add to the pressure. Whether you’ve been married for decades—or are simply contemplating marriage—consider professional advice about how to make a financial plan that you both can agree upon. Talk to us today about how to develop a personalized financial plan that meets your mutual goals.

JJ Burns & Company Acquires Emmes Wealth Management

By JJ Burns

July 11, 2016

Melville, NY – Nationally recognized wealth management expert JJ Burns announced this week that the company he founded has acquired Syosset-based Emmes Wealth Management. Emmes founder and CEO, Barry Goldberg, will join JJ Burns & Company as a Director. The acquisition represents a significant step toward JJ Burns & Company’s long-term strategic plan of building a leading wealth management team. 

Founded in 1994, JJ Burns & Company focuses on comprehensive wealth management based on an individual’s unique vision and goals. This boutique, high touch approach to planning incorporates all areas of your financial life including retirement planning, investment management, estate planning, and legacy planning. With the acquisition of Emmes Wealth Management and the joining of Barry Goldberg to the team, it gives JJ Burns & Company more time to focus on their mission of making a meaningful difference in the lives of the families they work with and their strategic partners.

“We serve our clients with openness and unparalleled attention to detail,” explained JJ Burns, CFP®, CEO/President. “And we’re excited that Emmes Wealth Management embodies those same principles that JJ Burns & Company is known for. Barry’s expertise and shared values formed the foundation of this acquisition.” 

Emmes Wealth Management was built on the principal of taking a whole life view of clients’ financial situations and providing broad-based, integrated strategies. “We are excited to join JJ Burns & Company. Their team planning approach, analytical and evidence driven investment strategy, and powerful client service model will enable us to provide even more value to the families we serve,” said Barry Goldberg.

Going forward, Mr. Goldberg will continue to manage his base of clients while becoming part of strategic business development initiatives and strategic partnerships at JJ Burns & Company.

About JJ Burns & Company

JJ Burns & Company is a leading wealth manager for high-net-worth individuals and families. As an SEC-registered independent Registered Investment Advisor, the company is a fiduciary advisor making recommendations that are solely based on the best interests of clients. JJ Burns & Company uses a team approach with a focus on fostering long-term client relationships. The company works closely with other professional advisors to develop a holistic plan covering every aspect of a client’s financial life. For more information, visit http://jjburns.com.