Urban Peak, a Denver based nonprofit, works to provide services to Denver’s homeless youth. Their goal is to equip young adults with the skills to overcome difficult challenges and become self-sufficient. Urban Peak provides overnight shelter, employment programs, a drop-in day center, street outreach, educational and employment services and supportive housing. In 2016, Urban Peak served 1,814 youth, with many moving on to have stable lives. On Monday, October 22nd, Urban Peak is hosting its annual fundraiser, “Plates for the Peak”. Come enjoy specialty drinks, fabulous food, music and a silent auction to support Urban Peak! Tickets are available for purchase online.
Social Media is one of the best or the best way to get your company started and a great way to have people recognize and help your company grow. The best platforms for your company include LinkedIn, Facebook, and Twitter. Click here to learn more ways to use social media to grow and build a community.
The Internal Revenue Service is giving approval for the back-door Roth. “Participants would be able to first contribute to a traditional non-deductible IRA then convert those funds to a Roth IRA, bypassing the Roth IRA contribution limits.”
Read more about it here.
Source: Financial Advisor Magazine
Socially Responsible Investing has emerged as a significant trend with competitive returns over both short and long terms. By demonstrating solid long-term returns, we’re likely to see more widespread adoption of these strategies in the future. Click here to read more.
Source: Charles Schwab
This article explores five key things successful managers do to inspire and motivate their team.
1. Seize every opportunity to rave about their team members.
2. Give them your undivided attention.
3. Coach them to course correct with love.
4. Initiate consistent professional development talks.
5. Believe in them.
Click here to read more.
Source: Customer Fanatix
"Is there any financial decision more complicated, far-reaching and irrevocable than when to file for Social Security retirement benefits? There is an optimum filing strategy that will maximize lifetime benefits—and reduce longevity risk—for every individual or couple. But analyzing hundreds of scenarios to identify that strategy is dizzying." Click here to read more.
Source: Wealth Management.com
"The hearing generally was viewed as an attempt to generate some momentum in the House for the bipartisan legislation that seeks to improve retirement plan access and administration". Click here to read more.
Source: NAPA Net
This chart shows the reasons Americans have in filing for unemployment over time.
Source: WSJ vis the Daily Shot.
"Fiduciary liability insurance protects against claims of breach of fiduciary duties. This duty requires fiduciaries to act solely in the interest of plan participants and their beneficiaries. Any breach could result in costly litigation and government penalties. " Click here to read more.
Source: Butterfield Schechter LLP
"The U.S. Department of Labor (DOL), recently released new regulatory guidance "clarifying" that "fiduciaries may not sacrifice returns or assume greater risks to promote collateral environmental, social, or corporate governance (ESG) policy goals when making investment decisions." Click here for more information.
Source: Wilson Sonsini Goodrich & Rosati
Authors: Chris Meyer, Innovest Vice President and Abigail Thomas, Innovest Lead Senior Analyst
Imagine waking up on Saturday morning in early April of 2016, ready for a sip of coffee and a quick look at how your investments performed during the previous quarter. Your eyes land on Harbor Capital Appreciation, your large cap growth fund. The performance numbers catch your attention, but not in a good way. The fund was down 5.49% in the first quarter, while the benchmark, the S&P 500 Growth Index, was up 0.53%. Instead of essentially breaking even with a low-cost index fund, you paid active management fees and lost about 5.5%, in one quarter? Harbor Capital Appreciation seemed like a poor investment. Surely you could have been invested in something better. You decide that you are going to call your advisor and discuss replacement options.
Why Do I Think This Way?
You pause long enough to eat breakfast before making the call, which allows your emotion to subside a bit. Reflecting for a moment, you ask yourself: Why the immediate, emotional reaction to last quarter’s poor performance? Because you are human. Our decisions are often influenced by the subconscious biases that swirl around beneath our conscious reason. Some of those cognitive biases can help explain why it is so easy to make a snap judgment when confronted with an investment loss.
Paying Too Much Attention to Recent Pain
People tend to experience the emotional pain of negative events, including investment losses, twice as strongly as they experience positive emotions from good events, like investment gains. To state the principle conversely, a positive experience creates about half the amount of emotional impact as a negative one. Paired with human tendency to allow emotions to influence decisions, it’s a recipe for less-than-rational decisions.
These tendencies are a central feature of Kahneman and Tversky’s 1979 prospect theory, which argues that people derive utility, or satisfaction, from changes in wealth, rather than from absolute levels. A simple example illustrates the concept: A person given the choice between 1) receiving $20 and 2) receiving $40 then immediately losing $20, will typically choose the former. That is true even though each situation results in the person having $20; the loss involved in situation two makes it much less appealing.
Another obstacle to investing rationally stems from the human tendency to give more weight to events that occurred recently as compared to events in the more distant past. Despite many past quarters outperforming most large cap growth managers, Harbor Capital Appreciation’s recent performance had been poor, which could have resulted in our human brains judging the investment as an overall poor performer.
These recent, painful experiences are sometimes distracting from other highly relevant data points. Here, investors may have trouble seeing past recent poor performance despite understanding that performance is only one of many factors that should bear on selecting a mutual fund. After all, investors ought to give great weight to qualitative measures of investment process, style, and personnel, along with the fund’s historical performance.
What Happens if I Act on These Tendencies?
Typically, reacting to recent underperformance is a recipe for mediocre investment results. A 2008 study examined the behaviors of 3,400 retirement plan sponsors between 1994 and 2003, specifically focusing on 8,755 manager hiring decisions1. The study showed that fired managers tended to outperform their replacements during the three years after the change, even when their historical returns outpaced the fired manager over the previous three years.
What Should I Focus on Instead?
First, remember every fund will underperform for periods of time. The reasons can vary from market cycle, to the fund’s investment decisions taking time to play out, to the manager’s unique style simply being out of favor. Diversification—investing in several different asset classes— typically results in a mix of investments outperforming and underperforming in all market environments. This fund diversification normally lowers the portfolio’s volatility, reducing the shock that any one market factor can have on the portfolio.
Second, consider both quantitative and qualitative measures when monitoring an investment. At Innovest, we pay close attention to the fund’s investment style and strategy, the manager’s experience and credentials, and the overall organization structure and governance. When we score an investment highly in these categories, it means that we have conviction that the necessary pieces are in place for the investment manager to execute a thoughtful and proven strategy that will achieve the fund’s stated goals. Paired with the quantitative measures of the fund’s size, performance, and costs, these qualitative criteria provide a robust picture of an investment and its suitability for your portfolio.
So, when should performance be an issue? When the underperformance is inconsistent with the investment manager’s process or style, or is the result of a significant process or personnel change, an investor should closely examine the merits of changing managers.
Returning to our Harbor Capital Appreciation example, the underperformance relative to the index experienced in the first half of 2016 was not inconsistent with the established investment process, was not the result of a change to fund management and was not a problem warranting manager replacement. Changing funds would have been a mistake.
In fact, if you avoided the pitfalls described above and remained invested, you would have been rewarded with a total return of 22.77%, 2.27% in excess of the S&P 500 Growth Index return of 20.50%, for the period April 2016 through June 2017. Qualitatively, the same investment team has continued to employ the same investment strategy. This includes a willingness to significantly overweight sectors that the team expects to outperform.
To be clear, this example does not prove that every underperforming fund will have an incredible upswing in the following year. Nonetheless, we believe focusing on short-term performance can distract investors from more meaningful factors and lead to suboptimal investment decisions.
1 Goyal, Amit, and Sunial Wahal. “The Selection and Termination of Investment Management Firms by Plan Sponsors.” THE JOURNAL OF FINANCE, LXIII, no. 4, Aug. 2008, pp. 1805–1847.
PIMCO has recently released their 12th annual Defined Contribution Consulting Support and Trends survey. The survey is able to, "help plan sponsors understand the breadth of views and consulting services available within the DC marketplace." Click here to read more.
"This year’s Boomer study demonstrates yet again the marked difference between Boomers who have engaged financial professionals to help them build comprehensive and effective retirement plans, and those who have not." Click here to keep reading.
Source: Insured Retirement Institute (IRI)
- According to the Tax Policy Center, these are the states that will see the most significant benefit under the new tax code.
- High –income families will most likely see the most benefit.
In his latest commentary, Blackstone’s Byron Wien opines on stocks, interest rates, politics, the central banks, inflation, regulation, as well as what he believes investors are too focused on, and what they are paying insufficient attention to. Click here for “Balancing the Positives”.
Now that the new tax law has been in effect for a few months, investors may be wondering what impact it will have on the economy, stocks, and bonds. Click here for some insights from Vanguard.
"Every fiduciary and other person who handles plan funds is required to be bonded against losses caused by their fraud and dishonesty-that’s been a legal requirement since even before ERISA was enacted." Click here to read more.
Source: Cohen & Buckmann, P.C.
"Section 404(c) is a historically misunderstood part of ERISA, with misconceptions rampant even before the 404(a)(5) participant fee disclosure regulations added to the confusion." Click here to learn more.
Source: NTSA Net