Tree Fort Financial

Jacki Liautaud

“Traditional” 60/40 Investment Strategy and TFF’s Active Management

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Photo by Nikita Kachanovsky on Unsplash

The traditional 60/40 portfolio may not deliver much in returns going forward, according to a recent study.

What is the traditional 60/40 portfolio?

20+ years ago, when I started putting money into my first job’s 401k, I knew next to nothing about investing. So I did some reading about traditional portfolio construction available on the 401k website.

I remember clearly the pie charts, showing ages and corresponding percentages of portfolios that should be allocated to bonds (considered less risky investment alternatives), and percentages allocated to stocks (considered more risky investment alternatives). It seemed relatively simple – choose my age, then choose the associated percentages in stocks and bonds. I can’t remember exactly what I chose, but I’m pretty sure I selected some variation of the 60/40 split: 60% of the portfolio is allocated to stocks, and 40% of the portfolio is allocated to bonds.

A recent study indicates that a 60/40 portfolio may see “miniscule” returns going forward.

A recent study by Rob Arnott (link opens in new tab) concludes that a typical 60/40 portfolio may see miniscule returns going forward, resulting in a lost decade. According to the article, “a traditional 60-40 portfolio is likely to deliver somewhere between zero and 1% over the next decade, a period when all baby boomers will have reached normal retirement age.”

The article continues: “Ten-year returns for bonds should come in somewhere around -0.5%, he said. Put that together with a 0.5% return for stocks and a 60-40 just manages to eke out a positive real return.”

If he’s right, and a 60/40 portfolio returns somewhere between 0-1%, this type of portfolio may not even keep up with inflation – meaning that at the end of the 10 year period, this type of portfolio could actually have less spending power than it does today.

The potential of active management

In contrast, active investment management doesn’t typically select a static percentage in stocks and another percentage in bonds. Active investment management often includes regularly evaluating a portfolio, potentially making changes to investment allocations in search of better returns.

Tree Fort Financial has a proprietary investment methodology (link opens in new tab) that has delivered returns beating a benchmark since inception 2003. Past results are no indication of future returns. See specific returns and accompanying disclaimers here (link opens in new tab).

Want to learn more about our investment strategy? Reach out to Tree Fort Financial today.

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Re-starting the economy after the pandemic

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Photo by Lukas from Pexels

What does the new economy look like as countries and states restart after the massive coronavirus pandemic shutdown?

It’s a new world

Six months ago, probably none of us would have imagined that here in the US, we would be required to stay home and limit our activity for the health and safety of our communities, the stability of our healthcare system, and to protect the most vulnerable among us – from what’s been called an “invisible killer”.

Almost every industry has been impacted by the pandemic – restaurants, retailers, gyms and spas have been shut down. But even companies which have done a lot of business during quarantine like Amazon (link opens in new tab) and major grocery store chains, have been impacted by paying higher wages to workers, spending more money on protective equipment, and dealing with supply chain disruptions.

The majority of people I interact with regularly, from clients to neighbors to family members, understand the importance of quarantining and are doing their best to keep themselves and their families safe by following the protocols in their states. But even the most compliant of them are starting to wonder, when will we be able to go back to some semblance of normal activity again? And even more concerning, what will “normal” actually look like in a post-pandemic environment?

It’s becoming more clear as time goes on that we will have to start re-opening the economy even in absence of any clear health-related breakthroughs in treatment, vaccines, or antibody tests available widely.

The consumer will have a major role in the success of reopening

I think the consumer will ultimately drive the success or failure of any individual state’s reopening plans. If the consumer isn’t comfortable going out, they won’t go out. If the consumer doesn’t feel safe going into one store and sees another store practicing measures that feel safer, the consumer is going to choose the store that’s perceived as safer. No one can force us to venture out before we are ready. And what ready means for each person will be different too.

According to this chart (link opens in new tab) from the St Louis Federal Reserve, in Q1 2020, personal consumption expenditures make up 68% of the US gross domestic product. So if the US consumer doesn’t feel comfortable spending money again, it’s going to be very tricky to get the US economy restarted.

And obviously, consumers aren’t currently spending the way they were prior to the pandemic. A 5/1/20 Barron’s article (link opens in new tab) said, “Consumers surveyed in France, Germany, Italy, Spain, the U.K., and the U.S. were spending 25% to 30% less than before the virus as of April 21, according to Deutsche Bank.”

How can companies prepare for their own reopening?

So what are some steps companies can take to get started on a successful reopening? This McKinsey article (link opens in new tab) details critical factors that should be considered as businesses plan for a successful reopening. Several of these recommendations could be helpful for both large and small companies. Here are a few recommendations from the article:

“Providing customers with safety guarantees that restore trust.” My friend Francine Brown from Bless This Body Massage Therapy (link opens in new tab) has been working hard on plans that will help her customers feel safe coming back when her business is allowed to reopen by the state. Some of her plans could include wiping down common areas and cleaning surfaces between clients, wearing a mask and requiring clients to wear masks, and more. She’s also been cultivating a connection to her customers through regular email updates with a variety of wellness-related resources.

“Safeguarding the health of employees.” A friend of mine works as a grocery store shopper. Several weeks ago, before masks were a requirement here in Illinois, she was provided with a mask hand-made by her boss’ wife. She appreciated the personal effort to help her stay healthy. At this point, employees will probably expect more safety protocols than a hand-made mask, but the important point is that my friend felt that her boss cared about her and wanted to keep her safe.

“Reviving demand.” Interestingly, this is going to be critical because many consumers and businesses may have gotten used to doing without many things they used to spend money on. So purchasers will have to be reminded of the benefits of the services or products they once used. To revive demand, businesses may need to rely on “tactical pricing” like deals, but they may also need to do a deep dive into market segmentation to understand which customers are worthwhile to woo back.

Need help with your business or personal financial situation? Reach out to Tree Fort Financial today.

Let’s get started talking about your goals!

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Creating an abundance mindset in challenging times

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In times of stress, we sometimes fall back into patterns that worked for us in the past, but maybe don’t work so well for us in the current times. 

Often, we may self sabotage by creating financial situations for ourselves that replicate patterns we experienced in childhood.

Do any of these scenarios look familiar to you?

  • Jennifer can’t stop overspending on credit cards, creating a sense of financial instability in adulthood through a cycle of spending, paying off, spending
  • Susan buys all the latest toys for her child so her child doesn’t experience the feeling of “not having” what the cool kids have, which Susan herself experienced in childhood
  • Amy refuses to spend any money, even at the detriment of her own health, under the assumption that she has to save every penny in fear that she will run out like her family did years ago when her father lost his job

Stressful times can bring out more old, unhelpful behaviors related to money.  A scarcity mindset can be the deeper issue underlying these behaviors.

Scarcity vs Abundance Mindset

Most people are deeply scripted in what I call the Scarcity Mentality. They see life as having only so much, as though there were only one pie out there. And if someone were to get a big piece of the pie, it would mean less for everybody else.

The Scarcity Mentality is the zero-sum paradigm of life. People with a Scarcity Mentality have a very difficult time sharing recognition and credit, power or profit – even with those who help in the production. They also have a very hard time being genuinely happy for the success of other people.”

Stephen Covey, The 7 Habits of Highly Effective People

The underlying idea behind the Scarcity Mindset is that there isn’t enough to go around, and there will never be enough.  There’s only one raise at work and it one person gets it, no one else can get it.  My income will go away if I don’t spend it now. Go on the vacation now, because I’ll never have another chance to do it later.

The Scarcity Mindset can create sadness and jealousy. If someone else a raise, I didn’t get it. Someone else found a person to marry, and I didn’t.  A feeling of jealousy and sadness can arise as a result of someone else getting that which you should have gotten.

The Scarcity Mindset focuses on the extreme short term of every decision. What is the most fun option right now? How can I use up all the resources right now so they aren’t taken away from me later?

With a Scarcity Mindset, you can feel an urgency to spend your income as soon as you get it, before someone or something takes it away from you – such as taxes, “the man”, or even losing it in an investment.

Contrast this with the Abundance Mindset

“The Abundance Mentality, on the other hand, flows out of a deep inner sense of personal worth and security. It is the paradigm that there is plenty out there and enough to spare for everybody. It results in sharing of prestige, of recognition, of profits, of decision making. It opens possibilities, options, alternatives, and creativity.”

Stephen Covey, The 7 Habits of Highly Effective People

The Abundance Mindset essentially believes that there is enough for everyone, and there will always be enough.

A characteristic of the Abundance Mindset is its focus on the long term. Just because you don’t get to have something right now, doesn’t mean you will never have it later. Skipping the awesome vacation right now doesn’t mean you will never get a chance to go on vacation again.  Someone else getting a bonus or raise doesn’t mean you won’t ever receive one.

The Abundance Mindset can create positive feelings towards others. You can feel happy and pleased for another person’s successes, because what they received is not taking away from what you have.  Another person having a good relationship doesn’t cause pain for yourself – instead you feel genuine happiness for that person.

It makes sense that an Abundance Mindset can make personal finance much easier.  When you’re focused on the long term and feeling that there is enough to go around, you don’t feel the need to spend money as soon as you get it.  There will always be more of it, and there will always be enough.  You become less paranoid and afraid of investing or paying taxes.

Here are some tips on creating an Abundance Mindset

  1. Create a gratitude practice at beginning and end of each day. Use an app (such as 5 minute journal) or a physical journal.  Even send a daily text message to a friend.
  2. Organize your home and life. Clean out your closet, garage, kids room, storage locker. When you Marie Kondo your space, you can feel appreciative of all the things you have that you love, and feel a sense of gratitude that you have so much that you can give some of it away. When you create a new organization system for your papers, business receipts, or other important papers, you are reminding yourself what’s important and can feel accomplished as a result of getting organized.
  3. Call a friend or loved one to tell them you appreciate them. Taking action on your feelings of gratitude can make all the difference.

“During the loneliest week of my life, I made a list of the people who mattered most to me. Then I wrote them each a note about what I appreciated most about them. Feeling grateful is good, but showing gratitude is better. Voicing the unspoken can remind us we’re not alone – and strengthen our connections.”

Adam Grant, organization psychologist at Wharton School of University of Pennsylvania

4. Reduce your media consumption and get outside. Feeling anxious and worried is understandable because we don’t know what horrible news we will hear about next.  Backing away from media consumption and getting outside can help you to feel appreciative of your health, the loved ones around you, sunshine and the birds chirping.

5. Share what you have with others. Feel good about what you shared/how you brightened someone else’s day.  Most of the time, you don’t even miss what you shared/gave away. Besides things, you can also share knowledge and time.

We are living in times like we have never before experienced.  It might be time to step away from some of those behaviors, financial and lifestyle, which are no longer serving us – and move towards new patterns that cultivate what’s important in our lives.

Your parents and financial planning

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Photo by August de Richelieu from Pexels

In this article, we examine the impact of a parent’s financial planning (or lack thereof) on their grown children.

Baby Boomers and (no) pensions

The Baby Boomer generation is the among first generations where pension income is likely not their main source of retirement income. In 1978, Congress passed the Revenue Act of 1978, which included a new section of the Internal Revenue Code, Section 401(k). Section 401(k) allowed employees to avoid being taxed on deferred compensation.

This meant that corporate employers were able to create plans, commonly called 401ks, that allowed employees to contribute to a retirement account using salary deferrals that were not taxed. As companies phased out pensions due to high costs and a changing workforce, more of the burden for retirement savings was shifted to employees.

However, not all Baby Boomers have saved what they needed to for retirement. And this lack of savings may end up impacting their grown children.

A recent article (link opens in new tab) from Yahoo! Money highlights this potential problem. The article cites an alarming statistic: “The median amount saved by those between 56 and 61 is $21,000, according to the Economic Policy Institute.”

Social Security may not be enough to make up the gap

I’ve talked in this space before about social security and how it may not make up the gap. According to Fast Facts and Figures about Social Security – 2019, as of December 2018 the average monthly retirement benefit for men is $1,627 and for women is $1,297. So the average retired couple, according to these figures, may be receiving about $35,000 per year from Social Security. Unless a couple has another income source, this average couple may have a pretty difficult time making ends meet. Now you can see why the median amount saved of $21,000 is probably not enough.

Grown children may have to help parents financially

And that’s where the grown children of Baby Boomers may be impacted. I personally know families who have had to make difficult choices in taking care of their aging parents. This could include parents moving in with their grown children and their family; grown children paying for some (or all) of Mom and Dad’s monthly bills; grown children quitting a job to care for a sick parent; and more.

Ask some uncomfortable questions

Do you know what your parents’ financial situation is? Even though the conversation might be difficult, in my view it’s always better to know the facts. Even if what you learn could be troublesome, it’s better to know in advance when you can do some planning around the possibilities than to be taken by surprise.

Do you have siblings? Talk things over with them and see how each of you might be able to help. And don’t forget to talk it over with your spouse as well.

Perhaps most important, make good saving choices now for yourself so that you don’t put your children in the same situation.

Need help with these conversations, or planning for your financial future? Contact Tree Fort Financial for help.

Let’s get started talking about your goals!

Schedule a Call

A sailboat and a plan

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Photo by Peter Gonzalez on Unsplash

In this article, we examine a real life example of financial planning in action.

Several years ago, one of my clients came to me with a question.

Can I afford to retire early?

Jacki, she said, I really want to retire early. Can I afford to? (Some details have been changed to preserve client privacy.)

I did what financial planners do – I investigated. I asked a lot of questions, and did a lot of research. Let’s call my client Megan. I asked her: What do you imagine your life looks like if you’re not going to work each day? Would you stay in your current home, or live in a different style of home or even different state? What might you be willing to cut out of your current expenses, if you had to?

Then I did a lot of research. What social security or pension benefits, if any, would she qualify for? How much would it cost to live the way she wants in retirement? What would she do for healthcare, and how much would that cost? How much did she have accumulated in savings through her employer’s 401k and other resources?

After walking through several detailed scenarios and discussing the merits of each, Megan decided to retire. It might require some scaling back but at the end of the day, Megan felt the trade-offs were worth the extra time freedom she would gain by retiring early. She told me that she had confidence in her decision, and when her co-workers and loved ones questioned her (What are you going to do with all that free time? Are you sure about this?) – she could answer them confidently and with enthusiasm about what her life would soon be.

Can I afford to buy a sailboat?

Fast forward a couple years, and Megan’s enjoying retirement very much, but life is always different than you think it’s going to be. Megan called me with a new request: she really wants to buy a sailboat. She’s researched it, she says, and knows how much it will cost, where she will store it, how often she’ll use it, etc. She’s even been taking sailing lessons to brush up on piloting skills learned in her youth. She wants to know, can she afford it?

Fortunately, she had been following the initial financial plan we created a couple years earlier: living within her means, cutting back on unnecessary expenses, and investing the money she had available for potential compound interest growth.

After some more research, I was happy to be able to say, yes – spend the money on the sailboat! She was so excited to let me know when the boat was purchased, and has since spent many happy hours enjoying the boat with her friends and family.

When I think of what financial planning can do, I think of Megan’s sailboat.

I imagine Megan piloting the boat with confidence on a beautiful breezy summer afternoon, surrounded by good friends. The financial planning work she and I did together gave her the clarity to feel confident about some big decisions she made in her life. She understood the trade offs she might experience due to possible lower income in an early retirement. But she was able to make the decision that was best for her, with all the knowledge that a good financial plan can offer.

In the best case scenario, spending the time to work on a financial plan can deliver clarity around your finances in a way you never had before. And that clarity can lead to making more informed choices about what you do now with your money.

What’s your sailboat – or your dream for your future? What actions are you taking now to help you get there?

Let’s get started talking about your goals!

Schedule a Call