Investment Management

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

July 1, 2020 By Jacki Liautaud

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

May 5, 2020 By Jacki Liautaud

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.

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A sailboat and a plan

January 24, 2020 By Jacki Liautaud

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!

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Why is it hard for millenial women to save for retirement?

December 26, 2019 By Jacki Liautaud

In this article, we look at millennials and retirement savings.

Millennial women may be saving less than millennial men

Millennials are the generation of people born between about 1981 – 1996, according to Wikipedia (link opens in new tab).

Recent research (link opens in new tab) indicates that millennial women are contributing 5% of their income towards a company retirement savings program like a 401k. But millennial men are contributing 8% of their income. Add to this the potential gender pay gap, and millennial women are saving even less.

On top of this, only 46% of millennial women feel confident about investing, according to this study (link opens in new tab). Another statistic from this same study: While a typical retirement costs $738,000, only 9% of American women have at least $300,000 saved. Of course, millennial women have some time to accumulate this amount of savings, but there’s no time to start like the present.

Start saving now – there’s no time like the present

It’s so important to save a portion of your income now, which can permit you to pay for yourself in the future when you are no longer able to work. With most people not receiving pensions from their employer, and social security typically only covering a small percentage of a person’s living expenses, the social safety net is not what it once was for retirees.

The good news is, millennials have a long time ahead of them in which to work, and save, for retirement. As a start, workers should typically save at least enough in their company’s 401k or other retirement savings program to earn the company match, typically around 3-5%. If they aren’t contributing at least this amount to their 401k, workers can be missing out on some valuable compensation which adds up over time.

Taking one step now towards saving, even if it’s a small percentage of your income, is still better than doing nothing. Talk to your financial advisor about your specific situation.

Get started now making good financial decisions for your future.

Let’s get started talking about your goals!

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Costly women’s investment gap

December 5, 2019 By Jacki Liautaud

In this article, we look at a potentially costly mistake women make with money.

Women budget, men invest – but it doesn’t have to be that way.

I had a conversation the other day with another woman advisor, where we agreed that we as a society need to do a better job educating women about investing and finances. She said, “Women budget, men invest.” As a woman advisor, I talk to women all the time about what they are doing with their money, and what they could be doing with their money – or rather, what their money could be doing for them!

A recent article in Investment News highlights this discrepancy between men and women. The article says, “falling short in the amount or percentage of income they invest could cost some women more in the long run than the gender pay gap”, according to Sallie Krawcheck, CEO and co-founder of Ellevest robo advisor.

She also says, “…women today invest less than men do…This gender investing gap costs women hundreds of thousands…over the course of their lifetimes – for some women more than the gender pay gap does.”

59% of women ages 20-34 defer investing and financial planning to spouses.

Also from the article: “According to a survey by UBS Group released earlier this year, 59% of women age 20 to 34 defer investing and financial planning to spouses.” While it’s perfectly logical, and frankly necessary, to divide up the myriad household responsibilities, at some point this can be a problem. Women typically live longer than men, so even women who remain married may become widowed and need to know more about their finances than they ever did before. Why not start learning about investing and financial planning now?

Read the full article here (link opens in new tab). And talk to your financial advisor about your specific situation.

Let’s get started talking about your goals!

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