The Importance Of Preparation

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Financially Preparing For Future Life Events

By SJS Manager of Client Services Lisa Denstorff.

No matter how much you prepare, unexpected events will sometimes cause you financial stress. It could be a new health problem, a sudden job loss, a pandemic, or some other unexpected event. And yet, over our 25+ years of working with clients, we have learned that effective preparation can help you avoid potential problems and undesired outcomes in the future.

For example, we recently assisted a surviving spouse who had NOT been the primary caretaker of the family’s investment and estate planning. Unfortunately, some basic organizational and planning strategies such as beneficiary designations on investment accounts had not been completed. And the result was the need for the surviving spouse to hire a lawyer and work through the probate process – one more challenge to face during the grieving process.

The surviving spouse also reached out to us at SJS. We were able to help organize important financial documents, provide a summary of existing assets and liabilities, collaborate with the estate attorney and accountant, and simplify and consolidate investment accounts. Our new preparations helped design a more diversified investment portfolio.

Now, with proper account titling and beneficiary designations in place, the client can feel confident that one day the assets will pass on appropriately to loved ones or for charitable gifts as intended, without complications to the loved ones.

Working through important financial issues (such as applying for Social Security survivors benefits, selling / buying a new home, creating a new estate plan, filing taxes, etc.) is difficult, and can be exacerbated during periods of grief, anxiety, and stress. If we better prepare for these issues in times of relative calm, then we can potentially avoid much of the stress in more troubling times.

What can you do to financially prepare for future life events? We suggest you consider the following:

• Inform a loved one or trusted contact as to where your financial documents are stored

• Prepare a list of assets, custodians, debts, household bills, etc.

  • Store or back up this information electronically

• Provide all important documents (will, healthcare power of attorney (POA), trust documents, etc.) to your financial advisor, accountant, estate attorney, etc.

• Review beneficiaries and account registrations annually on all assets

If you have any questions or want to discuss handling life events, please feel free to reach out to us. The team at SJS is always here to listen and to help ensure your financial peace of mind.

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Important Disclosure Information:

Advisory services are provided by SJS Investment Services, Inc., a registered investment advisor with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide tax advice. Please consult your tax professional for specific advice. This material has been prepared for informational purposes only.

Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.

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Suggested Reading

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What To Do When Your Baby Grows Up

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How Do You Manage Those Accounts?

By SJS Director of Client Services Jeff Yost.

One minute, they’re newborns. The next minute, they’re in grade school. And the minute after that, they’re lobbying for a car – either yours, or one to call their own. The fact is, kids grow up fast and, while you likely have received plenty of well-meaning parenting advice over the years, you probably have received less advice on how to manage those investment accounts you or a loved one set up soon after your bundles of joy entered the world, or at some point during their childhoods.

With so many other things to think about like grades, colleges, activities, and – let’s face it – the 24/7 job of raising good kids, it’s no wonder that few parents think about what to do with their minor accounts, also known as custodial accounts, once their babies grow up.

Many people are unaware that the age at which a custodial account may terminate and convert to an individual account varies across states. In most states, termination occurs at either age 18 or 21. For example, in the state of Ohio, if your child is age 18, you have a choice. You can maintain investments in a custodial account until your child reaches age 21, or you can convert the investments to a new individual account in your child’s name. When your child reaches age 21, a custodial account must be converted to an individual account in your child’s name.

Do you have concerns that your child is not yet ready to shoulder this responsibility on his or her own? There is an option to add one or both parents as joint owners on the account, whether the account is converted at age 18 or 21.

No matter which option you choose, the process is simple. Just contact us or stop in and we’ll get the paperwork going. We’ll send you everything you need, including new account documents and an SJS investment management agreement for your adult child to sign. That’s it.

As long as you are working with us, you have a team who has managed the transitions and the accounts of countless SJS babies, many of whom are now second-generation clients. We believe no one is too young for good investment discipline.

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Suggested Reading

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The Markets And Economy Are Loosely Connected

Just like walking your dog!

By SJS Founder & CEO Scott Savage.

Why is the stock market so volatile? What is today’s big drop telling us about the economy? What about yesterday’s big jump? Is there a recession coming? Another depression? Will I miss out on a market rebound?

We are experienced enough to know that we don’t know all the answers. But history has demonstrated that over long periods of time, the stock market and the economy are linked. As the stock market goes, so goes the economy. However, in any given year, economic ups and downs can diverge significantly from the direction of the market.

A well-traveled industry metaphor may be helpful in understanding the relationship between the day to day movement of the stock market and the real economy.

Imagine a dog owner steadily walking her dog through the park. The dog is on a leash but doing what dogs do in a busy park on a leash: barking, jumping, straining on the leash. To the left, then right, and then SQUIRREL!

The dog is the stock market, the dog owner is the economy. They end their walk in the park together, but along the way they sometimes move together, sometimes in opposite directions. If you simply watch the dog for a period of time, you might not know WHAT direction they are headed!

So the next time the market goes way up, or way down, we hope the dog owner and their “best friend” analogy will help you keep the long term view. That’s the view—and destination—we had in mind when your investment portfolio was designed in the first place.

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Suggested Reading

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Mid-Year Updates: IRA And PPP Rules

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By SJS Managing Director Jennifer Smiljanich.

In the current economic environment, the federal government has stepped in with the CARES Act legislation and other stimulus to help provide greater financial flexibility for Americans.  In the last few weeks, there have been two additional rulings that intend to offer help to those needing relief.  Below, we offer a summary of how those rulings may affect you. As always, please be sure to check in with your tax professional for guidance.

IRA Distribution Relief, Part 2

Earlier this year, the CARES Act allowed individuals who would be required to take a distribution from an IRA or defined contribution retirement plan in 2020, to avoid taking any withdrawals.  In Notice 2020-51 issued on June 23rd, the IRS offered further relief regarding Required Minimum Distributions (RMDs).

First, the 60-day rollover period for any RMDs already taken this year has been extended to August 31.  This extension will allow more taxpayers to take advantage of this relief. Second, Notice 2020-51 directs that any IRA owner or beneficiary who has already received a distribution from an IRA of an amount that would have been an RMD in 2020 can repay the distribution to the IRA by August 31.[1]  

For those individuals who took IRA distributions early in the year or who took distributions as beneficiaries of inherited IRAs, this guidance offers the option to return all or part of those distributions by August 31.  More flexibility is certainly good news and offers a “fair and favorable outcome” to those who took distributions in compliance with the rules early in the year.[2]

Paycheck Protection Program Flexibility Act of 2020

On June 5, 2020, the Paycheck Protection Program Flexibility Act (PPPFA) was signed into law, amending the CARES Act.  Among its provisions, the PPPFA offers greater latitude to the millions of businesses that applied for Paycheck Protection Program (PPP) loans, as follows:[3]

• Extended covered period for PPP loan forgiveness from 8 weeks to the earlier of 24 weeks or December 31, 2020.  Borrowers who received loans before June 5 may extend or keep the original 8-week period.

• Reduced the requirement that payroll costs make up 75% of covered loan amount to 60% in order to receive loan forgiveness.

• Increased PPP loan maturity from a minimum of 2 years to 5 years for loans originating after June 5, 2020.   

• Extended safe harbor deadlines from June 30 to December 31 to restore any reductions in salaries or hourly wages, or full-time equivalency levels.

• Amended reduction in loan forgiveness associated with staff levels.  The PPPFA added flexibility if Borrowers could document an inability to re-hire or hire qualified employees; or could document an inability to return to similar business operations as of February 15, 2020 due to compliance with COVID-19 restrictions.

• Allowed borrowers receiving loan forgiveness to also defer payroll tax payment per CARES Act provisions. 

Please know that your SJS team is here to help guide you through these ever-changing and difficult times. Please feel free to reach out to us with any questions.

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Important Disclosure Information and Sources:

[1] “IRS Extends RMD Rollover Relief Under CARES Act.” Melanie Waddell, 23-Jun-2020, thinkadvisor.com. 

[2] “New Rollover Rules For Unwanted 2020 RMDs Under IRS Notice 2020-51… Welcome Relief And A Troubling Precedent.” Jeffrey Levine, 25-Jun-2020, www.kitces.com.

[3] “Paycheck Protection Program – Where are we Now?  An Up-to-Date Guide to the Paycheck Protection Program.”  Proskauer, 24-Jun-2020, proskauer.com.

SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professional for specific advice. This material has been prepared for informational purposes only.

Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.

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Suggested Reading

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Market Movements Q2 2020: The Sequel

By SJS President Kevin Kelly, CFA.

EQUITY MARKETS

Last quarter, global markets experienced a synchronous drop in equity asset classes. Investors around the world arrived at lower market valuations that included falling revenues and newly identified risks. We can now offer a more encouraging picture as a rising trend has been evident in the same asset classes during the second calendar quarter:

Source: Morningstar.com, July 1, 2020. Equity asset classes are considered representative by SJS Investment Services based on actual results of institutional mutual funds within these categories (DFQTX, DFIEX, DFCEX, and DFGEX). Actual performance for each client may be different. Past performance is no guarantee of future returns.

As of June 30, 2020, the quarterly gain in major equity asset classes spanned a positive range of 12 to 22%.

THOSE DOGGONE PREDICTIONS!

It is worth re-stating that in our estimation and experience, most predictions are largely speculative and unreliable. The only prediction we are prepared to make is based on historical evidence that prices/economies tend to recover after economic shocks.

But we acknowledge that things can get worse from here and the current upward trend is in no way guaranteed to continue. Predicting where the dog at the end of the leash will go is range-bound at best…and even then, the dog can sometimes break his leash!

Investments, by their nature, are unpredictable. Yet we continually strive to manage your investments so that you can have the confidence that your MarketPlus® portfolio has been trained at obedience school!

If you ever find the investment markets make you “uncomfortable,“ let us do the worrying for you, so you can focus on the people and causes that matter most to you. We are always here for you, to lend an ear, to listen, and assist!

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Important Disclosure Information:

Past performance is no guarantee of future results. There is no guarantee investment strategies will be successful. Diversification neither assures a profit nor guarantees against a loss in a declining market. MarketPlus Investing® models consist of institutional quality mutual funds. Mutual fund investment values will fluctuate, and shares, when redeemed, may be worth more or less than original cost.

Indices are not available for direct investment. Their performance does not reflect the expenses associated with management of an actual portfolio. The performance of the indices was obtained from published sources believed to be reliable but which are not warranted as to accuracy or completeness.

Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.

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Suggested Reading

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Three Traits Successful People Share

Do You Have Them? Are You Raising Your Children to Have Them?

By SJS Founder & CEO Scott Savage.

I’ve been fortunate in my life. My work as the Founder and CEO of SJS Investment Services puts me in front of so many fascinating people who are successful, many of them self-made. Each one has a story to tell, and I gladly listen. Because I’ve come to discover that within each story about “those humble beginnings” are the clues to the degree of success—and happiness—achieved in the end.

This unscientific, but easily observable pattern of what it takes to succeed, has guided me in my business, in my personal life, and in my parenting. I’d like to say I have hit a home run on all fronts, but I haven’t. It can be all too easy to forget these basic truths—particularly when my children are involved. I appreciate clients around me who share their stories and serve as gentle, yet powerful, reminders of not only what makes people great, but our nation great, too. Here are the three traits:

Many successful people have known adversity

In the case of the self-made success story, often the story began with some hardship or challenge. Maybe it was poverty, and they struggled to make ends meet—some of the most poignant tales come from The Great Depression. Or as young children, they were expected to be part of the family income stream and earn their way. Often as children, their paper route and babysitting money went to the family to help make ends meet. They were seldom given anything, and instead had to earn it on the farm, in their community and sometimes even in the family business. Adversity turns children into adults who are more likely to value what they have, because it was earned and not given.

Many successful people learned the meaning of hard work at an early age

Earl Nightingale said, “Success is the progressive realization of a worthy ideal.” And I have found in my life and in the lives of successful people I know that when you are working hard, you are on the journey—the progressive realization—of success. I hear my clients tell stories of their youth and speak with pride about rising before dawn and getting to their chores. They learned through responsibility that no matter how hard the task, you work until it is done. And I can see it in their eyes, and hear it in their voices as they remember those days, the same pride of accomplishment they felt as kids, often some sixty years earlier. Through hard work, children may learn to appreciate the value of working towards a goal and to achieve pride and confidence in their accomplishments.

Many successful people have saved all their lives

The successful people I know have never spoken of working to buy things. They worked because it had to get done and whatever rewards they got, they saved. Work was the green light to save money, not spend it. This belief became a habit in the way they ran their lives, their businesses and today their investments. Saving can turn hard-workers into millionaires.

I tell my clients, many of whom are farther down life’s path than I am, that they are role models for me. Their example and insights have helped me to prepare my own family for the future. I’d like to say I have raised my kids to have the strength to overcome adversity, work hard, and save, but I am far from perfect. Everyone wants more for their kids than they themselves had, and that means life often gets easier with each generation. But at a time when the next generation is entering a world economy, competing with others who grew up living a harder life, will our children be prepared to succeed? That question concerns me, and I know I am not alone.

I share this because it’s never too late to pick up good habits. And judging from my clients’ stories, it’s never too early, either.

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Suggested Reading

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Value Opportunities

By SJS President Kevin Kelly, CFA.

Investor Howard Marks recently wrote, “All great investments begin in discomfort… ‘When the time comes to buy, you won’t want to.’ It’s not easy to buy when the news is terrible, prices are collapsing and it’s impossible to have an idea where the bottom lies. But doing so should be the investor’s greatest aspiration.”[1]

In an effort to buy low and sell high, many investors attempt market timing. However, studies have repeatedly shown that most investors who attempt to time the market significantly underperform broad market indices, due to many factors.[2] So if market timing is not reliable, what else can investors do to achieve higher expected returns?

MarketPlus Investing focuses on broad global diversification across thousands of securities via mutual funds. At the same time, we systematically seek stock attributes that have demonstrated higher expected returns over time.[3] Relative to broad market stock indices, MarketPlus Investing invests in mutual funds that tend to overweight stocks with financial qualities that, relative to their trading prices, have provided premium returns historically.[3,4]

Some of these qualities point us to smaller company stocks.[3] Other financial attributes suggest a bias towards “value stocks”, a quality that famed investor Warren Buffett tends to favor.[3,5]

In the spirit of Howard Marks, recent returns of small value stocks have provided plenty of discomfort, especially compared to the “blue chip“ index as represented by the S&P 500.

Sources: Ken French Data Library, Dimensional Fund Advisors Returns Web. As of 30-Apr-2020. See Important Disclosure Information for additional details.

But other than “discomfort,” are there any measurable indications that small value stocks may be a good place to invest? Perhaps one indication is that the valuation differences between US growth stocks and value stocks are at or near their greatest dispersions in history.[6] In particular, US growth stocks (particularly large growth stocks) are currently trading near valuations not seen since the 2000 Dot Com Bubble.[7] Contrarily, value stocks (particularly small value stocks) are below 40-year valuation averages, as demonstrated below.[8]

Sources: Dimensional Fund Advisors, CRSP, and Compustat. As of 31-Mar-2020. See Important Disclosure Information for additional details.

We do not believe these major valuation differences will continue over the long-term. Much of the recent outperformance of growth stocks is attributable to the performance of five of the largest stocks in the S&P 500: Microsoft (MSFT), Amazon (AMZN), Apple (AAPL), Alphabet (GOOG / GOOGL), and Facebook (FB).[9] These stocks currently make up > 20% of the S&P 500, and are all trading near all-time highs.[9] Based on forward price / earnings ratios, the stock market has already priced in high growth into these companies’ valuations.

Sources:  Morningstar Direct, YCharts, Yahoo Finance. As of 29-May-2020. See Important Disclosure Information for additional details.

We think historically cheap investments are more likely to provide higher returns over time than expensive investments, and the data suggests small and value stocks are relatively quite cheap today.[10,11]

There are sometimes rare opportunities when specific parts of the market are very attractively valued relative to broad markets, which often leads to higher expected returns over time.[12] Is this such an opportunity? Only time will tell. But we believe broad diversification and a disciplined rebalancing mechanism that incorporates valuations helps investors get appropriate returns for the risk they are assuming.

When you “buy low,” and prices go lower still, it can be a test of investment conviction. Nonetheless, we believe right now is a good time to stick with and lean-in to our disciplined investment approach called MarketPlus Investing.

If you ever find the investment markets make you “uncomfortable,“ let us do the worrying for you, so you can focus on the people and causes that matter most to you. We are always here for you, to lend an ear, to listen, and assist!

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Important Disclosure Information and Sources:

1. “Calibrating.“ Howard Marks, 06-Apr-2020, oaktreecapital.com.

2. Unconventional Success. David Swensen, 09-Aug-2005, Free Press.

3. “A Five-Factor Asset Pricing Model.“ Eugene Fama and Kenneth French, September 2014, Journal of Financial Economics.

4. “Dimensional Fund Advisors: A Deeper Look At The Performance.“ Mark Hebner and Murray Coleman, 04-Dec-2019, ifa.com. Please see Important Disclosure Information for additional information on MarketPlus Investing All Equity Model Portfolio.

5. “Berkshire Hathaway Inc. Shareholder Letters – 2020.“ Berkshire Hathaway, 2020, berkshirehathaway.com.

6. “Is (Systematic) Value Investing Dead?“ Cliff Asness, 08-May-2020, aqr.com.

7. “Lessons From the Dot-Com Bust.“ Mark Hulbert, 08-Mar-2020, Wall Street Journal.

8. “Spread the Word: What’s New with Valuation Ratios.“ Dimensional Fund Advisors, 14-May-2020, mydimensional.com.

9. “How Markets Work and the FAANG Mentality.“ Dimensional Fund Advisors, 2019, us.dimensional.com.

10. “Vanguard’s economic and market outlook for 2020: The new age of uncertainty.“ Vanguard Research, Dec-2019, vanguard.com.

11. “An Apology for Small-Cap Value.“ Verdad Capital, 04-May-2020, verdadcap.com.

12. “Crisis Investing: How to Maximize Returns During Market Panics.“ Daniel Rasmussen, Brian Chingono, Graham Infinger, Bryce McDonald, Greg Obenshain, and Chris Satterthwaite, 2019, verdadcap.com.

Past performance is no guarantee of future results. There is no guarantee investment strategies will be successful. Diversification neither assures a profit nor guarantees against a loss in a declining market.

Indices are not available for direct investment. Their performance does not reflect the expenses associated with management of an actual portfolio. The performance of the indices was obtained from published sources believed to be reliable but which are not warranted as to accuracy or completeness.

MarketPlus Investing® models consist of institutional quality mutual funds. Mutual fund investment values will fluctuate, and shares, when redeemed, may be worth more or less than original cost.

Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.

As of 29-May-2020, the MarketPlus All Equity Model is composed of the Dimensional US Core Equity II Fund (DFQTX: 54% weight), Dimensional International Core Equity Fund (DFIEX: 27% weight), Dimensional Emerging Markets Core Equity Fund (DFCEX: 9% weight), Vanguard US Real Estate Fund (VGSLX: 5% weight), Dimensional International Real Estate Fund (DFITX: 5% weight). There are limitations inherent in model allocations. In particular, model performance may not reflect the impact that economic and market factors may have had on the advisor’s decision making if the advisor were actually managing client money. Not to be construed as investment advice.

Advisory services are provided by SJS Investment Services, Inc.., a registered investment advisor with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide tax advice. Please consult your tax professional for specific advice. This material has been prepared for informational purposes only.

Statements contained in this report that are not statements of historical fact are intended to be and are forward looking statements. Forward looking statements include expressed expectations of future events and the assumptions on which the expressed expectations are based. All forward looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected.

The S&P 500 Index is a free float-adjusted market-capitalization-weighted index of 500 of the largest publicly traded companies in the United States.

SJS Investment Services (SJS) has created hypothetical performance returns and financial information for the S&P 495 using actual historical performance and financial information of the S&P 500 and five constituent equities: Microsoft (Ticker MSFT), Apple (APPL), Amazon (AMZN), Alphabet (GOOG / GOOGL), and Facebook (FB). The S&P 495 is not an actual index created nor managed by Standard & Poor’s. The S&P 495 hypothetical historical returns do not reflect actual trading or the performance of actual accounts. Actual client results may be materially different than the hypothetical returns. All returns presented include reinvestment of dividends and other earnings.

Value (Fama/French US Value Research Index), Growth (Fama/French US Growth Research Index), Small Value (Fama/French US Small Value Research Index):

• Composition: The index portfolios for July of year t to June t+1 include all NYSE, AMEX, and NASDAQ stocks for which we have market equity for December t-1 and June of t, and (positive) book-to-market equity data for fiscal year ending in t-1.

• Exclusions: ADRs, Investment Companies, Tracking Stocks, non-US incorporated companies, Closed-end funds, Certificates, Shares of Beneficial Interests, and negative book values. Sources: CRSP databases for returns and market capitalization: 1926 -present Compustat and hand-collected book values: 1926- present CRSP links to Compustat and hand-collected links: 1926- present.

• Breakpoints: “The size breakpoint is the market capitalization of the median NYSE firm, so the big and small categories contain the same number of eligible NYSE firms. The BtM breakpoints split the eligible NYSE firms with positive book equity into three categories: 30% of the eligible NYSE firms with positive BE are in Low (Growth), 40% are in Medium (Neutral), and 30% are in High (Value).”

• Rebalancing: Annual (at the end of June) 1926-Present Fama/French and multifactor data provided by Fama/French.

• Stocks are sorted on book-to-market ratio each June, where book-to-market for year t is computed using the book equity for the last fiscal year end in t-1, divided by market equity for December of t-1. Value and growth are stocks with book-to-market ratios above and below the 70th and 30th percentiles for NYSE stocks, respectively. Aggregate price-to-book value computed as the inverse of the weighted average book-to-market ratio where market equity is for the current month.

• Small stocks are NYSE, AMEX, and NADSAQ stocks below the median market cap for NYSE stocks, and big stocks are above the NYSE median. Value portfolios include NYSE, AMEX, and NASDAQ stocks above the 70th percentile of the book-to-market equity ratio (B/M) for NYSE stocks. Small Value stocks are both small and value, Big Value stocks are big and value, and Market Value includes all value stocks. Market Growth includes NYSE, AMEX, and NASDAQ stocks below the 30th percentile of the book-to-market equity ratio (B/M) for NYSE stocks. Small is the portfolio of all small stocks with no value tilt. The portfolios are value-weight (VW) and are reconstructed at the end of June each year. For each return horizon, the table shows average premium (Ave), standard deviation of premiums (Std), skewness (Skew) and kurtosis (Kurt), the percent of negative premiums (Neg), and percentiles of the distribution of premiums. The Monthly row in each block summarizes the distribution of actual monthly returns. Each of the remaining rows summarizes the distribution of returns produced by 100,000 simulations of returns for a particular horizon. The simulations allow for uncertainty about expected premiums.

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Suggested Reading

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The Secret To A Regret-Free Life

The Five Biggest Regrets And How To Avoid Them

By SJS Founder & CEO Scott Savage.

More than once in the many years since I started SJS, people have said to me, “Your life must be like a roller coaster ride. The markets are always going up, and then going down. It must be one wild ride.” Market fluctuations keep any investment firm on high alert, but the real ride for me in this business is something very different. For me, the ride is helping people worry less about their money and their futures so they can live their lives today.

I’ve always felt that one of the most important things SJS can do for its clients is strive to provide them with peace of mind. We are really in the freedom business when you stop and think about it. That concept hit home for me several weeks ago when I stumbled upon an article about the biggest regrets many people have when they reach the end of their life.

Bronnie Ware, a palliative caregiver who takes care of people with serious illnesses, shared the top regrets people often express at the ends of their lives.[1] In her position, she has been in the presence of countless people near death and the lessons are clear:

One of the main reasons I chose this career and started SJS Investment Services is that I find great meaning in helping others find and work on achieving their life’s purpose, and live their lives to the fullest. That means no regrets. What a wonderful thought!

It seems to me that we can all learn from Bronnie and the list of regrets she so often hears. It’s a great reminder for me of what my dad used to say: “We are all here on a rain check.” What he meant is that it’s up to each of us to cash in that check and not delay. Only we can make the choice to make the most of our time. So the question is – what are you waiting for? And, let us know how we can help.

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Important Disclosure Information and Sources:

[1] “The Top Five Regrets of the Dying: A Life Transformed by the Dearly Departing.” Bronnie Ware, 2012, Hay House Inc.

Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.

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Suggested Reading

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Listening Pays Off

By SJS Founder & CEO Scott Savage.

Remember the old EF Hutton commercial? There’s a planeload of people and two businessmen are talking across the aisle. One of them casually says, “Well my broker is EF Hutton…,” and at that moment, everyone inside and outside of earshot leans into the conversation. The famous line, of course, was: “When EF Hutton talks, people listen.”

Well, at SJS we have a saying, too. Ours is:

“When our clients talk, we listen.”

A little different than EF Hutton’s, but it has a power all its own. Our best client relationships form not when we do a lot of talking, but when we do a lot of listening.

You may be thinking, “But SJS is an investment advisory firm. Shouldn’t you be doing more advising?” Great question, but advising without understanding seldom drives positive outcomes. Decades of experience have led us to the belief that, “People will tolerate the conclusions of others but act on their own.” Operating based on that premise, it is our job to help you arrive at favorable conclusions, in good times and even in times of stress.

By listening to you, understanding your needs and concerns along with your feelings, we can arrive at conclusions with you, rather than lobbing general financial advice at you – advice that you may not want to take, and even if you do, you may not stick to. As we’ve said many times, long-term discipline in investing is fundamental to MarketPlus Investing®. But it is also not something we often find in the industry. Perhaps the reason is too much advising and too little listening.

Why don’t more advisors take the time to listen? Maybe it’s because many advisors believe that they aren’t doing their jobs, aren’t truly advising, unless they themselves are doing the talking. But in our experience we arrive at our best advising outcomes through listening. Recently, I had a client meeting that lasted a full hour and forty-five minutes. I talked for a maximum of five minutes during that time. The client is in the midst of a life transition and confused about his next steps. He left our office feeling a lot better than when he arrived because he reached conclusions that made sense to him, and I was able to affirm those conclusions through the industry knowledge and experience of our firm and its people.

Another reason why some advisors don’t listen more is because listening takes time. It takes energy, and it takes a level of caring that we believe isn’t common in this industry. I wish it was more common actually because then more people – even those who aren’t SJS clients – might feel more positively about their investment experiences.

But there’s another benefit that listening delivers, and I often call it the best part of my job. Listening to you allows me to learn about your life and your story. Over the last 20-plus years, I have been enlightened, inspired and emboldened by the courage and achievements of our seemingly ordinary clients. You are far from ordinary and listening has provided me a front-row seat to your stories. To me, that’s the most valuable benefit of all.

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Suggested Reading

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Hope Is Not Our Strategy

By SJS Director of Institutional Investment Management Kirk Ludwig.

We all hope for things, every day. We hope for good weather, we hope traffic flows smoothly, we hope our favorite contestant will be named the winner on the latest TV talent competition. Hope is a part of human nature – a feeling, an emotion we all experience.

But there are plenty of situations where hope just isn’t enough. Hope may be a lot of things, but it is not an investment strategy. Sure, we hope that our investments allow us to save for our children’s college education, or purchase that vacation home, or retire comfortably. In this case “hope” means that we want our investments and planning to pay off so that we can do all the things that we invest for.

Hope – and fear – can affect the way investors evaluate alternatives. When markets are up, and everything seems to be going our way, feeling hopeful is easy. Hope can lead investors to think optimistically about the future, to ask the question: How good can it get? According to Hersh Shefrin in his book Beyond Greed and Fear, an investor who says, “I’m hoping for…” may be willing to accept more risk to reach that goal.

On the opposite side of hope is fear. These two feelings have a way of affecting our ability to make rational investment decisions. So, that same investor who had been feeling hopeful may now feel fearful, saying, “I’m afraid of …,” and may be less likely to take on more risk. (Hersh Shefrin, Beyond Greed and Fear, 2002.)

How emotions influence decision-making forms the basis of behavioral finance, which seeks to explain why investors may make irrational financial decisions. One concept that can affect investors is “hindsight bias,” which often occurs in situations where a person believes, after the fact, that some past event was predictable and completely obvious. Of course, in reality, the event could not have been anticipated. But the way we feel today is likely the result of what we’ve experienced in the past, and this will influence how we feel about the future. In financial markets, as in many other areas of life, a number of events seem obvious in hindsight. We’ve all heard the old saying, “Hindsight is 20/20.” Psychologists believe that hindsight bias allows us to believe that events are predictable to find order in our world. (Albert Phung, Behavioral Finance: Key Concepts, Investopedia.com.)

Advisors provide value by understanding these behavioral tendencies and helping clients guard against them. The advisor advises, adjusting portfolio risk to meet investor needs, not based on their level of hope or fear.

With MarketPlus Investing, we’re not “hoping” that a single stock will do better than the market, or “hoping” that an active fund manager will continue to outperform.

Instead, we’re using science and decades of research to guide us. (Dimensional Fund Advisors, Putting Financial Science to Work, February 2015.) MarketPlus investing is all about science and structure. We share the Nobel-prize winning investment philosophy of Eugene Fama of the University of Chicago, and other time-tested theories developed with his colleague, Kenneth French, of Dartmouth College.

MarketPlus Investing is based on four core fundamentals.

1. Markets are efficient and priced fairly.

2. Speculating is futile.

3. Global stocks and bonds have rewarded investors over the long term. History has proven this, especially for those who have a strategy and stick with it.

4. Portfolio design matters most.

Interestingly, not one of those fundamentals mentions “hope.” The financial industry has a way of selling hope, and playing on emotions. By relying on science and “controlling the controllables” to an extent, we can help put your mind at ease. A MarketPlus Investing portfolio is designed to best manage asset allocation, risk and tax implications for you – all while optimizing your expected return for the risk assumed. There are always factors we can’t control. But when we rely on what we know through science, we can reduce the anxiety felt when facing challenging markets, providing peace of mind without leaving things to “hope” or chance.

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SJS Is Open For Business With You In Mind!

Yesterday I held my first face-to-face meeting with a prospective client since the early days of March.

We sat together at a conference table, although not too closely together given all of the guidance we have received.

But it felt good to interact in person.

From Arizona to Ohio to points beyond and between, governors and health directors seem to be signaling a new spirit of social reengagement.

Thoughtfully and carefully to be sure, each and every household is balancing health and well-being and finding their own equilibrium.

Business interactions and social interactions are finding new footing. Large gatherings and intimate gatherings are likely further off in the future.

At SJS, your professional advisory team modified their work schedules and locations in March and April, but we remained operational as we conduct financial transactions and were dubbed an essential service. Some of our colleagues have worked remotely. Others have been safe and comfortable commuting to individual offices, mindful of the health concerns that have spanned our nation and the globe.

We have strived to answer phones, answer emails, and continue to be responsive to you and all of our clients while working diligently on your behalf.

You may or may not have known that we made adjustments to our physical workspaces. And hopefully our service to you appeared seamlessly uninterrupted. That’s what you deserve.

With sensitivity to the public backdrop and the current social trajectory, we want you to know that SJS is open for business!

We have been and remain available to talk with you or meet with you, under whatever circumstances you prefer.

There may be a “transitional” normal, but we are striving to get back to normal nonetheless.

Our team is energized by the hope and expectation that we have turned the corner on public health concerns and the social and economic upheaval we’ve never before experienced. We will continue to manage through challenging investment markets on your behalf, whatever may come our way.

For 25 years, SJS has strived to live by the maxim: You come first. All the time. Every time.

We remain committed to you and look forward to seeing you before long!

Very truly yours,

Scott J. Savage
Founder and CEO

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CARES ACT: Key Changes in Tax/Benefits Provisions for Families and Businesses

By SJS President Kevin Kelly, CFA.

In these times of change, when news seems to hold more emotion and impact, it can be difficult to keep track of relevant news and sift through the noise. To that end, we wanted to share a summary of recent legislation that may affect you as you are navigating through the next couple of months of decision-making for your families and your businesses.

Tax Filing Dates and Estimated Tax Payments

As you may be aware, the IRS delayed the date for filing and making federal tax payments from April 15 to July 15, 2020.¹ This change applies to individual returns, payment due from trusts and estate, and C corporations. Businesses or other entities that have filing due dates other than April 15 have not been granted a tax extension.

While some states have adjusted their tax return filing and payment deadlines to match the new federal dates, each state is making their own decision. To see if your state has delayed its filing deadline, you may check this website.

For those who pay estimated taxes, the first payment will be due June 15, with the second payment following on July 15.² As always, please be sure to check in with your tax professional for guidance.

IRA Contribution Deadline Extension

The IRS has extended the deadline to make IRA contributions for tax year 2019 to July 15, 2020.

Relief for Small to Midsized Businesses and Their Employees

On March 18, Congress passed the Families First Coronavirus Response Act. Taking effect on April 2, this law provides benefits to businesses with up to 500 employees, with possible waivers for businesses under 50 employees. While some of the details are being determined by the Department of Labor, the Act assists both employees and employers. Workers may be eligible for up to 80 hours of paid sick leave and expanded paid childcare leave. Employers are eligible to receive 100% reimbursement for paid leave pursuant to the Act, including coverage for health insurance costs and payroll tax liability. Self-employed taxpayers are eligible to receive a similar credit.³

CARES Act Stimulus

On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), a $2 trillion stimulus package. This is the third piece of legislation since March 6 aimed at combating the economic disruptions caused by the coronavirus epidemic. Some notable provisions of the CARES Act include the following⁴:

• Cash Payment Payout: Individuals will receive $1,200 as a one-time cash payment from the federal government, while married couples will receive $2,400. Note that cash payments are available to individuals who had less than $75,000 of Adjusted Gross Income (AGI) in 2019, and to married couples with less than $150,000 AGI. Taxpayers will receive an additional $500 per qualified child. Payments are anticipated to be made in April.

• Small Business Help: Certain businesses with fewer than 500 employees impacted by coronavirus will be able to take out loans of up to $10 million. These loans may be eligible for forgiveness if used to cover payroll, rent and utilities. Employers will also be able to delay paying Social Security payroll tax normally paid in 2020; payments will be due at the end of 2021 and 2022.

• Unemployment Benefits Expansion: There will be an increase of $600 per week for up to four months for unemployment benefits. Benefits will also be extended to self-employed individuals and independent contractors.

• Student Loan Payment Deferral: Federal student loan payments are deferred through September 30, 2020.

• IRA Withdrawal Changes: Required minimum distributions from IRAs are waived for tax year 2020. The ten percent early withdrawal penalty that may apply to distributions made from retirement accounts for “Coronavirus-Related Distributions” is eliminated.

Additional IRA Distribution Information

As part of the CARES Act, Required Minimum Distributions (RMDs) are now suspended for 2020. RMDs do not have to be taken from Traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k), 403(b), and governmental 457(b) plans. Individuals who turned 70 ½ in 2019, do not have to take their 2019 RMD (normally due by April 1, 2020) or their 2020 RMD.

Distribution rules vary for beneficiaries of inherited IRAs. Beneficiaries taking “stretch IRA” distributions over their lifetimes do not have to take these distributions for calendar year 2020. However, beneficiaries of IRAs who must distribute the entire inherited IRA in a five-year period are given an additional year to distribute the full inherited IRA balance. Those beneficiaries subject to a ten-year distribution schedule for inherited IRAs will not receive an extension, as the first IRA distribution would be required in 2021.

So, should you still take an IRA distribution if there is no requirement? The answer is, it depends. If you need to take IRA distributions to support your lifestyle expenses, then you may still need to make distributions. You might consider making a partial or full IRA distribution if you can do so at a relatively low tax rate. Also keep in mind that if you are at least 70 ½, you can continue to use IRA distributions to make charitable gifts, which may reduce taxable income distributed to you, if you cannot itemize deductions on your tax return.

What should you do if you have already taken a distribution? In some circumstances, it may be possible to reverse unnecessary RMDs.

1. RMD has taken place within the last 60 days:
An individual may be able to write a check or transfer an amount equal to the distribution back into a retirement account before the end of the 60-day rollover window. Care must be taken to comply with the once-per-year rollover rule (the funds cannot have been rolled from a plan in the last 365 days, go to a plan in the next 365 days, and/or no other IRA-to-IRA rollover can have been made within the past 365 days).

2. RMD took place more than 60 days ago:
If the individual meets one of the qualifications for taking a Coronavirus-Related Distribution (CRD) in 2020, then the IRA funds can be repaid within three years from the date of distribution. Alternatively, the distribution can be taxed over three years. Distributions of up to $100,000 from an IRA or retirement plan may be eligible for CRD treatment if the taxpayer, spouse or a dependent is diagnosed with COVID-19, or any of the following circumstances apply:

• Experience adverse financial consequences as a result of being quarantined, furloughed, being laid off, or having work hours reduced because of the disease;
  Become unable to work due to lack of childcare as a result of the disease;

• Own a business that has closed/operate under reduced hours because of the disease; or

• Meet some other reason approved by the IRS.

What about for beneficiaries of inherited IRAs who made distributions already? These individuals are not able to make a rollover or return the funds to an inherited IRA. The only exception is for surviving spouses who took distributions from an inherited spousal IRA – the surviving spouse may be able to deposit the RMD back into their own retirement account as a spousal rollover.

Please know that your SJS team is here to help guide you and your organization through these difficult times.

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Important Disclosure Information and Sources:

[1] Erb, Kelly Phillips. “All You Wanted To Know About The IRS Tax Filing & Payment Extensions & Relief But Were Afraid To Ask.” Forbes.com. March 19, 2020. www.forbes.com/sites/kellyphillipserb/2020/03/19/all-you-wanted-to-know-about-the-recent-irs-tax-payment-relief-but-were-afraid-to-ask/#73b88b8845d5

[2] “Filing and Payment Deadlines Questions and Answers.” IRS.gov. March 24, 2020. www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers

[3] “Treasury, IRS and Labor announce plan to implement Coronavirus-related paid leave for workers and tax credits for small and midsize businesses to swiftly recover the cost of providing Coronavirus-related leave.” IRS.gov. March 20, 2020. www.irs.gov/newsroom/treasury-irs-and-labor-announce-plan-to-implement-coronavirus-related-paid-leave-for-workers-and-tax-credits-for-small-and-midsize-businesses-to-swiftly-recover-the-cost-of-providing-coronavirus

[4] “Analyzing The CARES Act: From Rebate Checks To Small Business Relief For The Coronavirus Pandemic.” Kitces.com. March 27, 2020. www.kitces.com/blog/analyzing-the-cares-act-from-rebate-checks-to-small-business-relief-for-the-coronavirus-pandemic/.

SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professional for specific advice. This material has been prepared for informational purposes only.

Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.

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CARES ACT – Resources For Small Businesses And Nonprofits

The past few weeks have been anything but normal. Federal and state mandates have impacted how most small businesses and nonprofits operate. According to JP Morgan, the median business holds cash reserves to cover just 27 days of expenses.[1] Even if your organization operates with a bigger cushion, anxiety about the future is forcing many business owners and organizational leaders to face difficult decisions.

The good news is that health and government officials have worked together to craft the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to help small businesses and nonprofits through these tough times.

We have summarized a few key provisions below. These programs can provide a significant boost to struggling businesses. If you believe that you may be eligible or have any questions, please reach out to your team at SJS. We are here to help and can direct you to the correct resources.

Economic Injury Disaster Loans (EIDLs)

The Small Business Administration’s (SBA) EIDLs are the first line of support. While not new, these loans are available in the event of disaster.[2]
The SBA offers many favorable terms in their EIDLs:

• Loans up to $2 million with terms up to 30 years. Interest rates are 3.75% for small businesses and 2.75% for nonprofits.

• Borrowers can receive an emergency grant cash advance of $10,000, which can be forgiven if spent on paid leave, maintaining payroll, supply chain disruption costs, mortgage / lease payments, or repaying obligations that cannot be met due to revenue loss.

You apply for these loans directly through the SBA.

Paycheck Protection Program Loan Guarantee

This program can provide a business with a loan up to $10 million for payroll and other expenses including:[3]

• Payroll costs, excluding prorated amounts for individuals with compensation greater than $100,000.

• Rent pursuant to a lease in force before February 15, 2020.

• Electricity, gas, water, transportation, telephone, or internet access expenses for services which began before February 15, 2020; and

• Group health insurance premiums and other healthcare costs.

The amount spent on the above expenses during the first eight weeks after the loan origination date is potentially eligible for loan forgiveness. To qualify for loan forgiveness, you must maintain the same average number of employees for the first eight-week period beginning on the loan origination date. If you don’t meet this requirement, the loan amount forgiven is reduced.[4]

Employee Retention Credit for Employers Subject to Closure Due to COVID-19

If you are not receiving a loan, you may be eligible for a new payroll tax credit. To be eligible, your organization must continue to pay employees while not working, as well as satisfy one of the following criteria:

• Organization operations were fully or partially suspended during Q1 2020 due to governmental authority.

• Organization has less than 50% revenue in the quarter compared to the same quarter in 2019.

In simplest terms, the credit is equal to 50% of wages paid to each employee, up to a maximum of $10,000 of wages per employee.[5]

Deferral of Payment of Payroll Taxes

If not receiving a loan, you may be eligible to defer payroll taxes from the date of the CARES Act enactment through the end of 2020, ultimately paying these payroll taxes in 2021 and 2022. More specifically, 50% of the payroll taxes that would otherwise be due during this period may be deferred until December 31, 2021. The remaining 50% is due by December 31, 2022.[4]

Net Operating Loss Rules Are Loosened

The CARES Act adjusts Net Operating Losses (NOL) rules to allow NOL from 2018, 2019, or 2020 to be carried back up to five years. In theory, this should allow companies to reduce tax bills from prior years, allowing them to claim refunds of amounts previously paid.[4]

Please know that your SJS team is here to help guide you and your organization through these difficult times.

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Important Disclosure Information and Sources:

[1] “Cash is King: Flows, Balances, and Buffer Days.” Diana Farrell & Chris Wheat, jpmorgan.com.
[2] “Small Business & Nonprofit SBA Programs Available with the Impacts of COVID-19.” Jim Ashley & Corey Stone, bkd.com.
[3] “Paycheck Protection Program.” U.S. Small Business Administration, sba.gov.
[4] “Analyzing The CARES Act: From Rebate Checks To Small Business Relief For The Coronavirus Pandemic.” Jeffrey Levine, kitces.com.
[5] “CARES Act Includes Employee Retention Credit.” Amy Barnes, Michael Goller, & Karla Nettleton, reinhartlaw.com.

SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professional for specific advice. This material has been prepared for informational purposes only.

Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.

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Grocery Stores And Equilibrium

By SJS Founder & CEO Scott Savage.

Monday, I ran into a supermarket for the first time since our collective world changed with the addition of the word “Coronavirus” to our lexicon. I was struck by certain sections of the market:

• Organic produce

• Rice

• Beans

• Bottled water

• Toilet paper (of course)

They were decimated by nervous shoppers. Many times in my life I’ve experienced similar “runs on the grocery store” when weather, terrorist attacks, past pandemics, and other “exogenous” events occurred. Our limbic (fight or flight) brains kick in to protect ourselves, and we behave in a way that may seem irrational to a casual observer.

At that moment in the supermarket I felt a strong parallel to the stock market, where nervous investors have decimated many sectors of the market as their limbic brains have triggered a “sell everything” reaction to recent events. And while I understand the desire to act on these emotive responses, my experience tells me that this can be a mistake.

I have seen these emotions and corresponding behaviors before. Notably in 1987’s “Black Monday”, 1998’s “Asian contagion”, 2000’s “tech wreck”, 2001’s “9/11”, and of course the 2008/2009 “great recession”. The “why” behind these stock market routs occurred were all different, but what made them similar was FUD: Fear, Uncertainty, and Doubt. And the collective response of investors led to steep market declines. But ultimately, in every case, an economic recovery led to higher markets.

And while this time could be different, the risk I believe we will simply have to endure once again is “how long” will the current reality last? Nobody knows for certain, but I personally envision a time in the not too distant future when the supermarkets will be well stocked, and order will return to the economic system and the stock market.

As human beings, and Americans, we have a history of navigating uncertainty and innovating our way through challenges. I believe we will get to the other side of the COVID-19 challenge together and grow through the process.

Good health and safety to you and your loved ones in the meantime.

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Working To Control What You Can

By SJS Senior Client Portfolio Manager Tom Kelly, CFA

Every day, events happen that are outside our control.

While we may not be able to control what happens around us, what we can do is identify the risks we know of, craft a plan to act appropriately given those risks, act according to the plan, update the plan upon receiving new information, and repeat this process. This tends to be true in health-related matters as well as with investing.

SJS previously wrote about the coronavirus, and our general message stays the same. Since that post, there has been more significant stock market volatility, a new oil price war between Saudi Arabia and Russia, as well as continued societal consequences worldwide due to the spread of the coronavirus.[1]

Here are a few key insights regarding our thought processes and systems in light of the recent stock market volatility and associated news events.

Educate yourself with reliable sources intended to help the general public.

Generally, and particularly in uncertain times, it is critical to receive information and lessons from the most reliable sources who intend to help the general public. Over the past few weeks, many news sources have published a lot of sensationalized stories with little-to-no new and useful information for helping people handle the consequences of the coronavirus. At SJS, we focus on high-quality information from sources including the Center for Disease Control (CDC) and World Health Organization (WHO).[2],[3]

Focus on important short-term and long-term economic indicators.

Long-term investors focus on fundamental economic conditions that drive returns, as well as market valuations relative to those fundamentals. For well-diversified global portfolios, general economic growth (as measured by indicators including gross domestic product (GDP)) drives much of the stock market returns that clients will realize over the long-term. Most economic firms believe that although GDP growth will slow down in the short-run, the coronavirus and oil effects should not significantly alter long-run economic growth expectations, which is what long-term investors should focus on.[4]

Design portfolios that can grow from risk and uncertainties.

Many studies have shown that asset allocation (deciding how much of your portfolio to allocate to stocks and bonds, respectively) drives over 90% of variability of returns, meaning that individual security selection and market timing have little positive impact on expected returns for most investors.[5] In light of this, SJS works closely with each client to develop a well-diversified global portfolio using institutional quality mutual fund that is true to the client’s goals and risk tolerances. (Diversification neither assures a profit nor guarantees against a loss in a declining market.)

For stocks, SJS invests globally in 10,000+ securities through institutional quality mutual funds, understanding these funds will move similarly with general stock markets. For bonds, SJS invests primarily (90%+) in thousands of high-quality investment grade securities, also using institutional quality mutual funds, which tend to perform relatively stable or even positively during times when stock markets are volatile.[5] For example, over the past few days, non-investment grade credit bonds (especially in the energy sector) have decreased significantly in price (likely in part due to the new oil price war), while most high-quality bonds have increased in value.[1] A portfolio consisting of a well-diversified mix of stocks and high-quality bonds is not expected to experience the same volatility or losses as what general stock markets will experience.[6]

Rebalance to influence risk, improve returns, and tax loss harvest.

During volatile stock market periods, rebalancing according to a robust systematic process can both move the portfolio back to targeted expected risk characteristics, with the goal of improving long-term portfolio performance due to selling more highly valued bonds and buying lower valued stocks.[7] Additionally, volatile stock periods tend to provide more tax-loss harvesting opportunities, which may increase long-term after-tax expected return. SJS has robust systems and processes in place to facilitate such rebalancing and has been working with clients to perform any relevant trades over the past several weeks.

History does not repeat itself, but it does rhyme.

Over the past 50 years, the world has experienced many significant stress events, due to health concerns, economic issues, wars, and so on. Below is a chart of the MSCI World Index since 1970 detailing performance and associated stress events.[8]

Additionally, over the past 100+ years, the world has experienced major pandemics like the Spanish Flu (1918-1920), which impacted roughly 27% of the world’s population.[9] Below is a graph of the S&P 500 and associated performance during and after these pandemics.[10]

Throughout these events, people reacted with resilience, and markets continued to function.

Sudden and complex events will happen. We do not know what these events will be, nor exactly when these events will happen – but we know that they will happen. We believe in the resilience of human beings, and accordingly we believe in the long-term growth prospects of global economies and investment markets. Because of this uncertainty and risk, we at SJS help clients focus on what they can control and allow markets to do the rest. We continue to recommend that our  clients rely on MarketPlus Investing to stay invested in well-diversified global portfolios true to each of their goals and risk tolerances.

If you have specific questions or concerns, please call us. We’re always here to explain and assist.

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Sources:

[1] “High-Yield Bonds Are Sinking as Bankruptcy Fears Hit the Oil Patch.” Alexandra Scaggs, barrons.com.

[2] “Coronavirus Disease 2019 (COVID-19).” Center for Disease Control and Prevention, cdc.gov.

[3] “Coronavirus disease (COVID-19) outbreak.” World Health Organization, who.int.

[4] “S&P: Coronavirus to trim 2020 global GDP growth by 0.3 percentage point.” S&P Global, spglobal.com.

[5] Unconventional Success. David Swensen, 2005.

[6] “3 Reasons Why You Should Invest in Bonds.” Nick Maggiulli, ofdollarsanddata.com.

[7] “Opportunistic Rebalancing: A New Paradigm for Wealth Managers.” Gobind Daryanani, fpanet.org.

[8] In US dollars. Source: Avantis Investors. MSCI data © MSCI 2019, all rights reserved. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results.

[9] “1918 Pandemic (H1N1 virus).” Center for Disease Control and Prevention, cdc.gov.

[10] In US Dollars. Sources: Avantis Investors, using data from Robert Shiller Data Collection at Yale University and Centers for Disease Control and Prevention. S&P 500® Composite Index does not include reinvested dividends.

Important Disclosure Information

Indices are not available for direct investment. Their performance does not reflect the expenses associated with management of an actual portfolio. Mutual fund investment values will fluctuate, and shares, when redeemed, may be worth more or less than original cost. Diversification neither assures a profit nor guarantees against a loss in a declining market. There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results.

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Resilience In The Face Of The Coronavirus

By SJS Senior Client Portfolio Manager Tom Kelly, CFA

Human beings have incredible resilience. When facing obstacles, humans tend to find solutions and persevere, often growing stronger from the experiences.

One recent obstacle is the coronavirus (officially known as COVID-19), an infectious virus that began in Wuhan, China in December 2019.[1] As of February 24, 2020, the coronavirus has affected roughly 80,000 people, resulting in roughly 2,600 deaths. More than 77,000 of these cases – and all but 23 deaths – have occurred in China.[2]

There is significant optimism among infectious disease health experts that the coronavirus will be contained relatively soon. Researchers globally have examined the genome of the coronavirus and have discovered the corresponding infectious proteins.[3] Governments and agencies around the world are considering ways to potentially slow down the spread of the virus, instituting travel procedures and other preventative measures. Additionally, leading global health agencies, including the World Health Organization, and major pharmaceutical companies are devoting tremendous resources to develop vaccines and treatments.[1]

In the past 100 years, the world has experienced many sudden infectious health diseases, including the West Africa Ebola epidemic in 2014, Swine Flu from 2009-2010, SARS in 2003, and the Spanish Flu from 1918-1920. Some of these sudden diseases were significantly greater in magnitude and severity than the current coronavirus. During these past periods, global stock markets experienced some short-term volatility that had little to no significant effects on intermediate- or long-term returns.[4]

Much of the short-term volatility in these past periods is consistent with general market movements, making it difficult to determine if these sudden infectious diseases even caused significant movements in the stock market in the first place.

Additionally, high-quality bonds have experienced little volatility during these periods, and have often increased in market value as investors moved money into safer bond investments.[5]

The stock market, general economic conditions, and societal health trends are a few of the forces that are in constant flux. You may find refuge in knowing that while utilizing our MarketPlus Investing® portfolios, we have worked with you to design low-cost portfolios diversified across many countries and asset classes that we believe can withstand and grow from these uncertain forces. (Diversification does not eliminate the risk of market loss.)

Your team at SJS continually monitors current and historical influences, forms judgments and, in turn, makes decisions about portfolio adjustments, tax saving strategies, and estate and legacy recommendations. We spend our time studying and following these developments, so you don’t have to.

SJS believes in the resilience of people and markets to respond well in the face of new obstacles, with the current coronavirus as no exception. Thus, ­we recommend you continue to rely on MarketPlus Investing to stay invested in your well-diversified global portfolio true to your goals and risk tolerances. Further, you may take solace in knowing that short-term market volatility typically allows us to rebalance portfolios in more tax-efficient ways that may improve your long-term investment experience.

If you have specific questions or concerns, please call us. We’re always here to explain and assist.

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Sources:

[1] “Q&A on coronaviruses (COVID-19).” World Health Organization, who.int.

[2] “Coronavirus disease (COVID-2019) situation reports.” World Health Organization, who.int.

[3] “How Bad Will the Coronavirus Outbreak Get? Here Are 6 Key Factors.” Knvul Sheikh, Derek Watkins, Jin Wu, & Mika Grondahl, New York Times. February 7, 2020.

[4] “How Will Coronavirus Affect Your Portfolio?” Nick Maggiulli, Of Dollars and Data. February 11, 2020.

[5] In US dollars. Source: Dimensional Fund Advisors, 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.

Important Disclosure Information:

Past performance does not guarantee future results. Diversification does not eliminate the risk of market loss. MarketPlus Investing® models consist of institutional quality mutual funds.

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Making Sense of the Future: SJS 2020 Capital Markets Expectations

For the full SJS 2020 Capital Markets Expectations, please click here.

As much as we might wish to, we cannot predict the future. But, one thing we *can* do is reasonably plan for what may happen.

When you work with SJS, one of our first conversations is about helping you determine your overall investment goals. Then, when we create your portfolio, we decide which assets to invest in, in what percentages, and in which accounts to place these investments with those goals in mind. By following our MarketPlus Investing® philosophy, we strive to design low-cost, diversified global portfolios across asset classes using institutional quality mutual funds in order to better manage the relationship between your accepted level of risk and expected return.

As we review the risk and return potential of your portfolio, we’re always looking forward to project potential expected return and risk scenarios for each asset class in which you’ve invested over the long term – meaning 10 years or more.*

While we can learn from what has happened in the past, asset prices are based on expectations of future economic conditions. These expectations are inherently uncertain, as investors do not know what, exactly, will happen in the future. So, we believe that providing a range of potential expected returns for each asset class is appropriate, as using a single number often creates a bias that leads to unrealistic and unrealized expectations.

SJS uses these Capital Market Expectations to help us design a portfolio that is appropriate for you, and to share with you some of the insights from the SJS Investment Committee. We continue to strive for better information and research where appropriate, and we will update these long-term expectations alongside changing market conditions and economic realities.

We can’t know ahead of time which months (or even years) will have the highest market returns, but through MarketPlus Investing, SJS supports you and your investment goals by applying these capital market expectations with caution and using them primarily for long-term strategic planning rather than short-term market decisions.

For the full SJS 2020 Capital Markets Expectations, please click on the image below.

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Important Disclosure Information:

Past performance is no guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.

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Welcome, Catherine Stanley, to SJS Arizona

SJS is delighted to welcome Phoenix native Catherine Stanley, who joins our team in Scottsdale, Arizona as Advisor Support Associate.

Catherine earned her bachelor’s degree in marketing from the University of Arizona, and she also holds her MBA from the Thunderbird School of Global Management at Arizona State University. Before joining SJS, Catherine worked for more than 20 years in international marketing and operations throughout Latin America and China. She loves the richness and challenge of communicating across cultures, speaks both Spanish and Portuguese fluently, and learned some Mandarin while living in China.

Catherine has had a passion for personal finance from a young age, and her interest in studying global markets arose from her extensive experience living abroad.

Most weekends, you’ll find Catherine supporting her son’s soccer competitions, or spending time with her family, including her two adult children, granddaughter, and her parents who live nearby – as well as her two dogs.

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The SECURE Act Shifts The Rules Of Retirement

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By SJS Managing Director Jennifer Smiljanich

It seems like the only constant in life is change.

Last December, President Trump signed The SECURE Act as part of the year-end 2019 spending legislation.[1]

The SECURE Act – “Setting Every Community Up for Retirement Enhancement” – shifts the existing rules on retirement saving and distributions, for both account owners and their beneficiaries.

As happens often with tax legislation, there are some people who may benefit from the changes and others who may view the changes as detrimental. We’ve highlighted some of the more significant modifications within the Act that affect your retirement planning:

The SECURE Act extends the current required minimum distribution age from 70½ to 72

If you turned 70½ in 2019, you must begin taking a minimum distribution from your IRAs and other retirement accounts no later than April 1, 2020. In a nutshell, if you reached age 70½ in 2019 or before, you must continue taking at least minimum distributions from IRAs or retirement accounts. For this group of retirees, there are no changes to the distribution rule.

The change comes into effect if you will turn 70½ in 2020 or later. If you are in this age group, you can wait until age 72 to begin taking distributions from your IRAs or other retirement accounts.

The SECURE Act allows individuals who don’t want or need the income from their retirement accounts to delay taking these distributions, and delay paying taxes to Uncle Sam. Statistically, this provision may help the 20% of retirees who take only the minimum amount required. The remaining 80% of retirees take out more than the IRS-required minimum.[2]

Interestingly, the SECURE Act still allows anyone who is 70½ to make Qualified Charitable Distributions from IRAs and avoid having the distribution count as taxable income.

The SECURE Act allows IRA contributions after age 70 if still employed

Many Americans are delaying retirement longer than ever. As of February 2019, the Census Bureau reported that about 20% of Americans over age 65 – more than 10 million people – were either working or looking for work, representing a 57-year high.[3]

The SECURE Act allows anyone who still earns income from employment, or is married to a spouse earning income, to contribute to an IRA after age 70½. Traditional IRAs had been the only retirement account that did not allow contributions to be made after age 70½.[2]

The SECURE Act eliminates “Stretch IRA” benefits for some beneficiaries

Until now, when IRA owners passed away, their beneficiaries could take distributions from those IRAs over their lifetimes. By doing so, they could allow the IRA funds to grow tax-deferred and potentially stretch out the tax liability over their lives.

Under the new legislation, when IRA owners die (any time in or after 2020), most non-spouse beneficiaries must fully distribute the IRA balance within 10 years following the year of inheritance. (The prior IRA distribution rules remain unchanged for any beneficiaries of IRAs whose original owner died prior to January 1, 2020.)

There is some flexibility, in that IRA beneficiaries who inherit this year and going forward could choose to distribute at any time during their 10-year window. Exceptions also may exist for spouses, minor children, or those with special needs or chronic illnesses.

As always, we at SJS stand ready to listen and work with you and your other professional advisors to guide you in understanding how these changes may affect your plans for the future. Please give us a call – we’re here for you, and happy to help!

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Sources:

[1] “The SECURE Act.” Chairman Richard E. Neal, House Committee on Ways & Means.

[2] “SECURE Act and Tax Extenders Creates Retirement Planning Opportunities and Challenges.” Michael Kitces, www.kitces.com. December 23, 2019.

[3] “Millions of Americans are Working Past 65, and It’s Not Because They Can’t Afford to Retire.” Tanza Loudenback, Business Insider. April 29, 2019.

Important Disclosure Information:

SJS Investment Services does not provide tax advice. Please consult your tax professional for specific advice. This material has been prepared for informational purposes only.

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3 Cheers For 20 Years

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By SJS Founder & CEO Scott Savage

The world looked a lot different 20 years ago. Your mobile phone was large and unwieldy, and could be used to make a phone call, and that’s about all! The Y2K scare had just passed with barely a blip – to the great relief to anyone with a computer. The New York Yankees were dominating Major League Baseball, and Florida State University was the team to beat in college football. Much has changed as the past 20 years have ticked by.

Something that hasn’t changed? The voice you hear when you call SJS. Twenty years ago, SJS Founder and CEO Scott Savage asked his then-neighbor, Meredith Sleet, to answer the phones at his office – for just a few weeks. Meredith agreed … and a few weeks turned into a few years, which turned into two decades last November.

“When I try to describe what Meredith means to me, I start to tear up,” reveals Scott. “If I am the length and shadow of SJS, Meredith is the one holding the flashlight and making sure there are always spare batteries in the closet.”

Meredith is similarly reflective about her time at SJS: “From just four of us in the office when I started, to the ‘Sweet 16’ we have today, it’s hard to call it work when everyone makes it fun!”

And then, just two months after Meredith joined the SJS team, Scott reached out to Kevin Kelly to fill the role of Managing Director.

Kevin served in that capacity until 2008, when he was named SJS President. “Twenty years ago, Kevin brought a method to my madness,” says Scott. “Turning all that we do into a reliable process has allowed SJS to serve more clients at the high standard they have come to expect from us. I am eternally grateful for our friendship.”

From Kevin’s point of view: “It has been a tremendous experience and blessing to get to know and serve the wonderful clients working with SJS over the past two-plus decades. Working with Meredith, Scott, and a team of colleagues that are second-to-none, we strive daily to make MarketPlus Investing® the investment approach with the highest service standards in the industry.

“What a fulfilling challenge to serve individuals, families, and institutions – where our success can directly impact goals that are meaningful to them!”

As we start the new year, the time is right to look back and reflect on the past year – or, in this case, the past 20 years! We are thankful to have Kevin and Meredith as part of the SJS team, and we look forward to their leadership, guidance, and the sound of their friendly voices for many years to come.

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