The November election will take place during a global pandemic, and a recessionary economy.
What was discussed during this webinar:
• Are there wealth management plan changes that should be considered now and in the coming months?
• Are there tax planning moves I should consider?
• Is it wise to make portfolio changes today to prepare for the market’s reaction to the election?
• What should I expect in the markets going forward?
Featured Speakers:
Darrell Tierney, CFP® CPA
Matt Bellomo, CPA
Transcript
2:01
Good afternoon, and welcome.
2:04
Thank you for joining us for our webinar.
2:07
Today, we’re going to be discussing common concerns and questions that we hear our clients voicing in anticipation of the upcoming November election.
2:19
I’m Emily Petty, a CFP and Wealth Manager at Windward.
2:25
Today, we’re going to be hearing from Matt Bellomo, a longtime CPA and now wealth manager at Windward.
2:32
We’re also going to be hearing from Darrell Tierney, the founder of Windward, a CPA and CFP and Senior Wealth Manager.
2:42
We’re going to be on here for approximately 40 minutes and please feel free to submit questions at any time throughout the webinar.
2:51
We’re going to do our best to address all the questions at the end.
2:56
And with that, I’m going to turn it over to Darrell and Matt.
3:09
Welcome, everybody, How are you? Good.
3:13
I’m great, glad to be here. So, I think a great place to start, we all see the Yogi Berra quote there. I think that’s, that’s a pretty good disclaimer, but let me make one other comment. So, as part as part of Windward’s planning and our firm structure, we’ve tried to identify certain firm values that we believe are important. One of those values, which comes into play today, is it’s our belief that we need to stay politically neutral. And I say that, of course, we’re not politically neutral in our personal lives. We’ve all got our opinions. But, for two, pretty good reasons.
4:04
We think it’s important to stay neutral, whether we’re in the conference room, in today’s world, whether on a video conference, or on a webinar, we want to stay neutral. One, we’ve got clients all over the political spectrum. We don’t want to get in any fist fights. We like all our clients. We’re not biased that way. But really, most importantly, we feel like it’s important to stay politically neutral, because our job as advisors is to be rational, to look at a situation and give you what we think is the best advice under the circumstances. So I think we’re on our fifth presidential election since the founding of Windward. We’re coming into number six. And so things change. And our plans that we make portfolios, tax plans, all those things, need to be adaptable.
5:02
So that’s a good, we’re off the hook now, Matt. So I’ll say anything to embarrass me. Good. Okay so.
5:19
Sure where?
5:21
I’d like to start – let’s talk a little bit about planning before we dive into kind of the meat of the program.
5:30
I want to explain how we view the planning process, and, you know, first and foremost, I believe that good planning is a probabilistic exercise. So that it really doesn’t matter what we’re doing.
5:49
If it’s tax planning, if it’s portfolio planning, here’s where the staff always rolls their eyes. I’m a sailor. I think it’s a great kind of a comparison to what we do. When it’s time to go sailing,
6:05
you kinda have a plan. You know where you want to go but the second, you get out there, everything changes.
6:10
But we evaluate probability. So if there’s an 80% chance of the big storm, we’re not leaving the dock, that’s that. And I think it’s important as we develop plans, we think about probability.
6:22
So if, in our estimation, there’s something that is a high probability event, a high probability tax law, or something going on in the market, we can make decisive action number one.
6:37
Often, in what we do, there is what we consider either low probability or unknown probability. And that’s probably the more common, we just don’t know.
6:48
And I think when you deal with and we’ll talk about this as we get into the meat of the program, when we deal with unknown probabilities, I think there’s two things you want to do.
6:58
Number one, you don’t want to limit choices. You want to basically keep your options open as best you can. Anytime you take, you know, you narrow your options, it can be dangerous. So one, keep that what we call upside optionality. And two, you don’t want to take any position that could make your plan blow up. Your tax plan, your wealth management plan, whatever you don’t want to want to do that. So, and I think it’s important to say at the outset that a good decision can be, let’s say we think there is something that’s a high probability. You know, we think this is something north of 85% probability.
7:43
We could make a decision based on that and it could be wrong because that 15% chance is a probability it won’t happen, and it certainly can. So, I’m in full agreement with Yogi Berra. And I’m in full agreement with Matt. Who, what we’re going to talk about, I think the best place to start, Matt, yesterday the presumptive Democratic nominee, Joe Biden, picked his Vice President.
8:12
So we’re often, often runnin’. And if we weren’t in election season, up till now, we are now. And so I think a good place to start, a good place to start the conversation.
8:27
Let’s talk about taxes. When it comes to taxes, is this a kind of thing – do we wait until Election Day start making tax moves? How do you, how do you think about that? From kind of a probability? Should we start now? Where do we go from here?
8:49
I don’t know.
8:57
I think the place to start as it relates to tax policy is just kind of state the obvious. That is between now and November 4 there is going to be a lot of noise.
9:11
And a lot of prognostications, all of which is just posturing as it relates to future tax policy. So, I just want to get that out upfront, because we really don’t know what’s going to happen.
9:25
The focus right now tends to be on who the president is going to be.
9:31
And we kind of forget that the Congress, who controls Congress, either the House and Senate or both, that’s very material to tax policy. Because they’re going to introduce the bills and then come to an agreement before they send it onto the President. So, we also need to keep an eye on the House and the Senate.
9:54
The Senate, like, for instance, is wide open right now, so we don’t really know what’s going to happen.
10:00
I think the other thing to keep in mind, too, is after the election, until the end of the year, we’re in a lame duck Congress, and so the chances of any material tax legislation passing between 11/4 and 12/31 are just not great.
10:19
And so you might get an extender bill here or there, but probably nothing material until sometime in 2021 after Congress was sworn in, the new president is sworn in.
10:30
And at that point, they’re going to go to work and probably some time, if there is going to be new policy, we’ll probably get it some time late spring, early summer. That’s kind of been the rhythm the last couple of cycles.
10:48
I think it’s also important right now to note that the “Trump tax cuts” are permanent until, well, they’re not permanent, they don’t sunset until 2025.
11:01
Which means that for most of us, that very well may remain the law under which we operate.
11:09
Now, that doesn’t mean it can’t change.
11:12
We all know that legislators who raise taxes face a little higher hurdle at the time they go to get re-elected.
11:22
So, they don’t really want to raise taxes.
11:25
So, I think that that’s just kind of something to keep in mind, too, right now.
11:31
So, Matt, you, as you talked about.
11:36
So, so, to kinda go back to my, my probability discussion at the beginning, it sounds like what you’re saying is up until election time, you know, the country is very, very divided. We’ve got really unknown probabilities on who’s going to be President.
11:54
But after Election Day, very well, Well, we don’t know how long after Election Day, but at some point, we’re going to know who the President is, and who controls the houses of Congress. Is that the time, are the probabilities known at that time to start making your moves?
12:14
I would submit that even at that point, we don’t really know, because the Congress, as is currently constructed, being in a lame duck session can’t really do a whole lot. But at that time, you’ll probably start hearing some more.
12:29
Some of the proposals will be a little bit more concrete.
12:33
That’s not to say that they’re going to stick, but, at that point, you know, now, they’re starting to go to battle about who’s gonna give, who, what.
12:43
So, I don’t think that there’s any way we would act, necessarily, on proposed tax law, but there is lots of tax law that we know. OK. So.
12:57
I’ve always, I always feel it’s very hard to hit a moving target.
13:01
If anybody’s ever seen me shoot a gun, they know I can’t hit a moving target, stationary at best. I think it’s one of those things we need to.
13:11
That’s exactly right.
13:12
So I think one of the things that I would recommend between now the end of the year, election notwithstanding, there are things that we know that we can plan for. Two major pieces of legislation passed since last last December, the SECURE Act, and the CARES Act.
13:33
And so there are a handful of things that we can kind of toss around to discuss.
13:39
One of them might be the 2020 RMD being suspended under the CARES Act. And we have until August 31st for any RMD that was taken, that we don’t want to have included in income to get that back out. So that’s one actionable item that we can engage in right now and run the math and say does it make sense to put it back?
14:06
We love, at Windward, we love Roth conversions and the discussions thereof. The SECURE Act extended the RMD date until 72.
14:15
That is, you don’t have to take a distribution until you’re 72, which might open a window for some folks to do a Roth conversion.
14:25
Some folks might decide to take their 2020, in what would have been an RMD, and do a Roth conversion, those kinds of things. You know, we are also heading into year-end tax planning.
14:40
We’ve done some work for kind of directional 2020 expectations.
14:45
And as we get closer to the end of the year, as the pictures for our clients crystallize, we’ll spend a little time fine tuning those projections and any payments related thereto. We’re going to look at tax loss harvesting, tax location, things of that nature. Things we do just kind of as a matter of course. We’re going to do this every year.
15:10
I think the last actionable item that a lot of folks tend to forget about is, for those folks who are still employed, the window for their benefits is going to open here pretty soon. Probably October maybe into November.
15:26
And there are opportunities to feather your nest in there as well.
15:31
So if I tend to see, we tend to see circumstances where maybe they leave a little something on the table, so reach out to us and we can kind of help out with those kinds of things.
15:46
But really the overriding thing on the tax side is obviously we’re going to pay attention to what’s going on in tax law and any impact that has on our clients.
15:58
But the tax game is really a long term proposition. It’s the long game, if you will. What I mean by that is, we’re going to make decisions and help people do things now. So that they have more flexibility in the future.
16:16
Might not know why, they, you know, what’s going to happen, what event, or events. But we just know things happen and the more flexible we are the better.
16:30
And so that kind of dovetails nicely with our financial planning approach to the long game.
16:37
We plan for the things we know we can plan for. Who saw Corona virus coming? Right? I mean, those kinds of things.
16:43
So, it’s important for us that the tax, our tax planning, dovetails nicely with our financial planning.
16:52
And we do what we can in a given year, but we’re also trying to think about flexibility down the road. And the last stage that relates to the tax policy is.
17:08
Just interrupt you for a second.
17:10
I was just gonna say, you know, when we see the way tax bills moved through, you know, we may start getting opinions about about probability but you know you’re you’re new to Windward but you’re a longtime tax planner, and I know you recognize, man the night before the sausage making process of tax laws. The night before a bill is signed, everything can change. And the devil is in the details in what we do.
17:45
And, and, you can make some wrong. You’ve seen it, you can make. Yeah.
17:51
You know, and really. It’s hard to hit moving targets, right?
17:56
That’s exactly right. You know, kinda to that preserving upside optionality, as you were talking about that.
18:03
It made me think about tax diversification.
18:06
So if somebody’s fortunate enough in their investment accounts to have a tax deferred account, a tax free account, a Roth, let’s say, tax deferred being 401 K or IRA, and then a taxable account, maybe their personal account, their trust account, or whatever.
18:23
The beauty of that is, we don’t know down the road what the tax rates are going to be, necessarily, but when it comes time that they need a withdrawal, we have options.
18:33
And that planning, just as you mentioned, we gotta start that now. We’ve gotta start getting those things into place now.
18:42
That’s exactly correct.
18:44
And those are the kinds of things that, you know, we do it incrementally.
18:49
But every little bit helps.
18:51
So sometimes it’s kind of insignificant in the short-term, but, boy, it can be significant in the long term.
18:58
And anything I can do to set it, and that’s the better.
19:00
And, you know, that’s really what we talk about when we talk about tax alpha with our clients, is you can create permanent differences with the tax law, if you are paying attention to it.
19:11
So all I’ll say is we will keep everybody in mind as the picture crystallizes because it will be very different come the spring.
19:25
Good point. Well why don’t we pivot now? If you have nothing more to talk about with respect to taxes, why don’t we pivot, talk a little bit about investments.
Well, let’s, let’s start. Let’s kinda think, I think a good place to start. As we were kind of getting ready for this we, we came across a slide, basically, that, that shows what’s happened in past presidential elections. So, you know, maybe looking at the past is a good way to start. What we have here is a listing of some recent presidents.
20:16
And by the way, I got to say, Matt, first thing, he saw when we, when we looked at this, as he started telling me, there was a handful of presidents who aren’t on here.
20:26
One, he mentioned that. For example, Kennedy, Ford, but history nerd, but not only that, he went and looked at the results and I think what we’re showing you pretty well bears true. This is the S&P 500, which we think is a good proxy for the stock market. Basically 500 largest US companies by, so it basically lists key presidents and what the stock market returns were in the first, second, third and fourth year of their administration.
21:04
And ah, I can see everybody going through that.
21:10
You know, I think about and should probably have kept Emily on here because Emily is our, our resident psychologist slash wealth manager. Her undergraduate degree is in psychology. But, the, the thing I like to point out is one, there is a tendency for people and I think this goes back to our reptilian brain,
21:34
we try to find patterns when we look at things. And there may or may not be patterns or there may be patterns that are just maybe correlated. Some statistics that are correlated but that aren’t necessarily caused. And so I visualize all our all our listeners looking at this trying to figure out what this means. Number one. The other kind of a psychological pitfall I want to be, I think we need to be careful about is
22:04
we talk about confirmation bias. Where, let’s say, your political persuasion is you think if Trump gets elected, it’s it’s a disaster, we’re in for terrible next four years, or let’s say just the opposite. You feel like if, if Trump makes, you know, retains the presidency, things are going to be great. Well, there’s a real tendency to look for things in the environment that support what you think might happen and so it’s very, very difficult to maintain objectivity.
22:36
So, Matt, what do you think of that? What do you think of that slide?
22:42
Well, you know, two things jump out to me, Darrell.
22:45
The first one, is that in year one, you don’t always get what you would traditionally think of as the Republican bounce. And what I mean by that is Republicans are generally pro-business.
22:59
Well, if you look at Eisenhower, Nixon, GW, didn’t do so well. So, you know, again, kinda that confirmation bias,
23:08
what you would expect to happen didn’t happen. And Obama at 23 percent in the first year, obviously he inherited a very bad economy.
23:17
So, you know, you can go back and nitpick it. But I think the reality of it is, is that the results were not what you may have expected.
23:25
So I think that’s one thing.
23:27
The other thing that sticks out to me is that if you look at year three, with one, with all but one exception,
23:34
there was a gain. And there was no loss.
23:37
Which tells me or at least my prognostication on that might be that the notwithstanding what happens in the big macro world, right? Who wins the presidency, what’s going on in the economy, et cetera.
23:51
These constituent companies, you make decisions on a micro basis as it relates to them, their customers, their shareholders, et cetera.
24:01
And so, if you look at year three, it tells me that they’re going to continue. Every company is going to continue to do what they think is best given the environment, regardless of what that environment is.
24:16
And so, again, small sample size, but companies are going to do things to feather their own nest, if you will.
24:29
And so, notwithstanding the big macro things going on, they’re going to do micro things to help.
24:36
So I just think that that’s interesting. I don’t know if there’s any validity in that other than what we know is
24:45
companies are going to do things that are best for them.
24:50
Notwithstanding what’s going on in the larger.
24:56
I agree with you, you know, I was trying to set you up to see if you’d try to pick out a pattern, which.
25:06
And you did. Well I did. And I hope it comes true. Hard to argue with, no. So interestingly, pretty good numbers there.
25:21
That, that’s the kind of thing. So, we’d have to evaluate and say, what do we think the probability is that year three is a good year in the presidency? To me, it’s not a high enough, I agree with everything Matt said about perhaps that’s companies adjusting to the environment. But I’m not, I’m not sure I’d make investment policy out of it. But it’s definitely interesting and it looks like a pattern. So there you go. Welll let the audience. Let the audience make their own their own judgement on that. Right, we’ll take a poll.
25:59
Right, so, so I think one of the things that’s important is, when we’re talking about taxes, as Matt mentioned, it’s not just the President, it’s Congress as well. I mean, that’s an important factor.
26:14
I believe when we start getting into markets, there’s two other things that I think are really important that enter into the,into enter into this scenario. That is, one, where are we in the business cycle?
26:29
Because I believe there is a, you know, and I think, frankly, the business cycle was abruptly interrupted this year because of the Corona virus. None of us had that in our, in our sights. No business had that in their business plan that I know of. But, there is a business cycle.
26:48
And, late in the business cycles, valuations can get stretched and and, you know, Matt mentioned the economy as President Obama took over where where they inherit things in light of the business cycle factors in, and I think that’s one thing I’d point out. Second thing, the big gorilla in the room is the Federal Reserve. And what the Federal Reserve theoretically they’re, apolitical. What they’re doing with interest rates has a huge effect on the markets. And know that, is, that is, theoretically, you know, it’s meant to be a separate entity. That’s not, you know, they’re trying to protect that from the political process as best they can. So, I think that that’s
27:40
a good way to look at it. And the other thing that
27:47
I want to say, I think we ought to make a difference, differentiate on 1 thing.
27:54
People often, in their minds, kinda get the stock market,
27:58
the economy, and their personal situation – it all kinda runs together. And they’re very, very different.
28:06
So, for example, I, you know, I was thinking of this when you were talking about tax changes, no matter what tax rates are, your personal situation could be, you’ve just retired, you haven’t started drawing Social Security, you haven’t started required distributions, you’re moving into a lower tax bracket.
28:24
It’s, that’s probably more important, the micro, what’s going on with you personally is more important than what’s going on with the markets and the economy.
28:32
So, so I think that’s good, and we’re at a perfect time to observe the difference between the stock market and the economy.
28:43
Some people would argue there’s a big disconnect right now, that how can the economy be on its knees? The way it is and have a stock market getting ready to hit record high? That that may or may not be true in the short run, but I think the other thing that’s important to note is the stock market is a leading indicator, So, it’s going to come back before the economy. And, for example, kind of the classic, employment is a lagging indicator. So long before everybody’s back to work, and we’re back to full employment, that’s going to happen at the tail end of this thing. So, you can make an argument that the market is probably doing exactly what it should should do. But I think it’s good to think clearly about those as you’re, as you’re talking about the market.
29:33
Um, so, the other thing. There’s a lot in that.
29:41
That’s exactly right.
29:43
So, the other thing that we hear about, we hear about the president, presidential election, and what the potential effect might be on markets a lot. And I think there’s, there’s two points I want to make about that. So, one is, when it comes to the stock market, most people, when they’re thinking about it, relative to the president, to the election, they’re thinking about price movements. In other words, they’re thinking, this person gets elected and the market, is going up, or the market is going down. And what, I go back to what, Ben Graham, who was the Columbia University Professor, kinda father of value investing, differentiated between speculating and investing. And he defined speculation as trying to anticipate price movements.
30:40
Whereas investing was trying to basically buy companies that you think are attractive value that are going to make a certain amount of money. That type of thing.
30:49
A lot of what we hear this time of year this, this point in the cycle is what I consider speculation. People are just betting on what’s going to happen to the market.
30:58
In the short run. And they may not even be looking at the first year, they may be saying hey, you know, a common, a common thing is to say: Does it make sense to get out of the market right now until after the election? Just go to cash to preserve capital and wait till after market. The dust settles.
31:21
Yep. What is, what are your, what are your thoughts on that, Matt?
31:28
Well, I would say, you know, if we look at the next slide, we’ll see kind of what my thoughts are on that.
31:37
The next slide will show that in this 20 year period.
31:43
Now, given, it’s just one asset class, the S&P 500, But if you sat out the 60 best days, look at the difference in the, in the rate of return.
31:55
So, if you miss, if you stay fully invested, 6%. You missed 10 top days, 2.44, all the way down to 60 days, 7.02 negative, which tells me that you know, we don’t know what’s going to happen. I mean, we’ve established that.
32:17
I think the other thing that’s happened is, when you think about a 20 year period of time, 60 days, it’s three days a year. Nobody knows what those three days are going to be.
32:30
And so I think about things like, it’s not time in the market, or not timing the market. It’s time in the market.
32:40
And this dovetails nicely with that. So, again, one asset class.
32:48
But our portfolios have multiple asset classes knowing some things are going to zig when others zag.
32:54
In the hopes of smoothing out their returns, mitigating the risk,
33:00
one by being diversified. Two by being by rebalancing when things get a little bit out of their
33:10
zone.
33:11
And so, you know, it’s, I don’t see any region as it relates specifically in response to the presidential election you get out.
33:25
If there’s a reason that is specific to a particular client, likely then, we’re doing it for a completely different reason. It just might be right, you know, coincidental timing, if you will.
33:40
Right. Right. And kind of back to the discussion at the beginning where we talk about probabilities. So, what we’re saying is the election is kind of an unknown probability event.
33:52
Getting out of the market is really narrowing your options. Because you could miss one of the worst three days or one of the best three days, that could materially affect a plan. And so, to preserve your optionality, the idea is as you kind of stay in.
34:10
Now, I think the other point, I think it’s important to make when we talk about high probability, low probability, there are some things I think are high probability with respect to the market.
34:21
So, many people are familiar with Jack Bogle, the founder of Vanguard. In one of his books,
34:30
he basically showed that over long periods of time, 15 and 20 year periods of time, that the, the, whatever the return on equity that the companies make, the profitability of the companies themselves, basically has a very high correlation, almost translates into the investment return.
34:51
you can expect. Now, over time, multiples expand and contract. So we all know the late nineties tech bubble where multiples were through the roof and they collapsed.
35:03
And so, if you got invested in the late nineties and needed the money out in a year or two, that collapse of the multiples would, would destroy your plan. But when we look at long periods of time, a lot of this up and down, action of the multiples historically, that washes out and you kinda get what the companies make.
35:25
So, one of the one of my views is a high probability tells me that the longer you’re in the market, the longer your time frame, the better chance you have of being successful. And so, that has all kinds of implications for people that are retiring and getting ready to draw on their portfolio, and things like that. You’ve got to protect yourself, but long term money, and even as 65 year old couple, may have a combined life expectancy of 35 years. So we’ve got a long a lot of times, we have a long time horizon, so that’s one. And then, you know, kinda to echo what you said about rebalancing,
36:06
I think one of the things that we base our process on investment, and we tend to be kind of asset class investors, those, those things tend to revert to the mean. So, what is a top performing asset class now? Over time, likely will will fall and not be as good a performer, and poor performing asset classes, revert to the mean, and they come back. We don’t know the timing on that, but are built into our rebalancing process is when things are up, we try to take some money off the table in that particular asset class, and we re-invest it in things that are down.
36:45
It’s no guarantee and we don’t know what the timing is but, when it comes to probabilities, that historically has been a good bet.
36:54
And then, when it comes to, go ahead.
37:03
OK, one thing I was going to say briefly was, Darrell was kind of the in the out going in going out those kinds of things.
37:13
John Maynard Keynes once said, famously, that the market can stay irrational longer than you can stay solvent.
37:23
And so, you know, it, he’s a lot smarter than me. So I’m going to give him all the credit. But, you know, I think we’ve given a lot of compelling reasons why we think it’s best to stay in the market.
37:37
Not only just mathematically, but it also helps people sleep at night knowing that we’re doing these little things, the rebalancing, the tax loss harvesting, things of that nature.
37:50
You know, and and what you’ve kind of reminded me, as you said, sleep at night.
37:55
One of the things that occurs to me is if people have a really, really high conviction that they ought to get out of the market because the election, because it’s just too crazy. Let’s get out until things are, quote, unquote, normal.
38:09
I think what you need to do in that case is have a serious conversation with your advisor. Because that becomes a risk tolerance question. It may be, you know, it’s worth a conversation, because you may not have the risk tolerance. You know, the Corona virus was out of left field. It was an unknown unknown, and it continues to be an unknown. The election is kind of a known unknown, and every four years, we go through this, and if you’re just convinced it’s time to get out, it may be a warning to you that you don’t have the risk tolerance.
38:45
My, my recommendation in that case would be, think about a more, a more conservative portfolio, not for the election – permanently. Because you’re going to have a hard time riding the ups and downs. And we know the ups and downs are part of it, that’s part of the game, that’s part of how you earn the better returns, So, you’ve got to stay in it.
39:06
Um, so, last last comment I would make, you know, I mentioned that about, Jack Bogle, I think, a mental model, a trick, that I think, is really useful to help. If you’ve got concerns about where the market’s going. And this is that, this, I, I stole this from Warren Buffett.
39:28
This isn’t my trick, but, but I think it’s really useful as a stockholder in public companies in the market to think about yourself as a private business owner.
39:40
So for example, if Matt and I decided let’s go together and buy a McDonald’s franchise, we would not decide, let’s sell this thing before the election, and then buy it back after the election.
39:57
And, but, but realistically, you own companies and the only difference is, you have liquidity because of the stock market, You can, you can turn it into cash, instantly, get in and out. That’s your advantage, in the public markets. But you can absolutely turn it inherently into a disadvantage. So if Matt and I own a McDonald’s franchise, and the tax laws change, we’re going to try to structure our affairs to take care of that. And we’re going to do the adapting that Matt mentioned early on, about companies in the election cycle, adapting. I think that’s a great mental model, to kinda tell you what to do in the markets.
40:40
So Matt, you want to buy McDonald’s franchise? It might be confirmation bias but why not?
40:53
Exactly, at least temporarily.
40:56
Well, let’s, I think that’s that’s, I think we covered most of what I want to cover. Why don’t we get Emily back on here and open up and see if we have any questions?
41:08
I am back. Hello, OK, great discussion, great topics. We have a few questions. And we have a little bit of time.
41:19
One question is, I’ve heard that value stocks have been doing well the last several days. My portfolio was recently changed to have less emphasis on value. Is this still a good idea?
41:35
Well, that’s, that’s great, That, I think, is a great point.
41:38
So, to kinda explain. I think, what we’re, what the questioner is going for on that.
41:46
The market has really been driven by the large tech companies, you know, the fang stocks, Facebook, Apple, Netflix, Google, Amazon, those. Those have really been driving the markets.
41:59
For a long time. Value companies being kind of the historical kind of bread and butter, old-school economy, companies with inventory and those kinds of things.
42:11
In June, we saw a cycle where it looked like value, may be coming back here in the last week or so. It’s looked like value has been outperforming growth. Is that a rotation? Is it not a rotation? What I will tell you is, back to what the way we started. I don’t have a high probability on either of those things. I can make a great argument. Why the growth companies you’re going to keep rollin’. They’re going to perform the best through the pandemic. I can make a great argument why value could be coming back in. So our answer to that, to preserve your upside optionality is make sure you’ve got exposure to all of those asset classes, because the worst thing would be to narrow your choices down. Let’s go all large value, if it doesn’t perform, we’ve got a problem. So that’s my answer.
43:08
And all I would add to that is the portfolios as currently constructed at Windward would catch your bulk growth and value.
43:17
Not only large cap, but small cap.
43:19
That’s right.
43:20
So again, some things zig while others zag. That’s right.
43:27
OK, another question we got on the S&P 500 returns for the Presidential terms, were the two term Presidents, were those years averaged?
43:41
They were not, I think it was, I believe it was just the first four years.
43:46
They were just the first four years, yep.
43:51
OK, I think we have time for maybe just 2 more questions.
43:58
OK, and I didn’t, I don’t know if I mentioned, or not, those returns or did not include dividends.
44:05
It was literally just the price change from the beginning of the year, until the end of your return is what we were looking at, pure returns right, OK.
44:17
So with all this uncertainty in the stock market and tax law, should I do a Roth conversion this year? If my income is down? And I know you guys talked a little bit about this, but I think I thought this was a really good question.
44:35
Well, it’s a, it’s a great question. And I can say that we love the idea of doing a Roth conversion.
44:41
And, you know, it’s one of those things that it’s hard to just say.
44:48
Absolutely, yes, or absolutely no. Directionally, it’s a great thought.
44:53
Reach out to us and we can help figure out whether it’s the right thing to do given all the uncertainty, need a challenge with the loss conversions, always, if there is a tax cost to doing so.
45:07
And so, we want to be awfully sure that we don’t spend too much money.
45:13
And kind of the game on that, I think, is, when your income is down, if your income is permanently going to be down, let’s say you’re, you’re retired, you’re moving from being in a high income situation. And you’re going to be kinda permanently in a low-income situation. Maybe that’s not attractive. But where are we know it’s attractive is, if you’re income’s down and you’re expecting it to go up, it might be a great time to pull money out at a lower tax bracket versus wait, and pull it out at a higher tax bracket. So, you know, again, it’s very situational.
45:52
Correct.
45:53
And a good example of a situation where that might make sense in 2020, is small business owners who have a loss and have sustained a loss in their business and that path that loss is going to pass through to them.
46:06
It didn’t let you utilize that loss currently.
46:10
That’s a great point.
46:12
So as Darrell said, it’s a situational.
46:17
We have time for one more question, and then we’re going to wrap things up. Is the recent rise in the market due to businesses getting ready for a great rebound or more from what the Treasury is doing with monetary policy?
46:36
Matt’s laughing he wants me to answer this. I think it’s, I think is a fantastic question.
46:45
Every day
46:46
The media has come up with the reason. I will tell you what. The market is up because there’s more buyers and sellers that’s in that in a nutshell is what happens when there’s more buyers and sellers, the market goes up when there’s more sellers and buyers market goes down it could the Federal Reserve is a large buyer I think that’s important. I think interest rates being low are one thing that’s very, very important and as I mentioned, I think as a forward you know, I think the question is, is dead on. I think it’s all the above.
47:26
Matt, any comment, you want to add anything to that?
47:31
Well, all I would add to that is that there are a lot of factors, and, you know, low interest rates as one of them. The Fed certainly has a hand in that.
47:45
But just overriding you can find three good reasons that the market is going to go down.
47:50
And you can find three good reasons is going to go up.
47:52
And so, you know, it’s a great question.
47:57
And, and I, know, I say, you know, and I think, you know, interestingly, kinda go back to what, what we talked about.
48:08
This. Whether it goes up or down, in a way, is this multiple expansion and contraction that we say, if you’re a really long term investor, will likely work its way out. So, you know, I suspect that 10 years out, what happens with the election, is not going to have a material effect on most people’s financial plan. If they’ve kinda stayed the course, No, that’s, that’s what I would consider, kind of a high probability bet.
48:39
So, we, we successfully didn’t answer that, Matt.
48:47
Sure. It’s a good question.
48:50
It was a great question.
48:53
That’s about all the time we have for today and we didn’t get to all the attendee questions and there were some really good ones. So, if we didn’t get to your question and you’d like an advisor to follow up with you, please e-mail me your question. You can see my e-mail on the screen here epetty@windwardfp.com. And if you’re if you’re not a Windward client and you would like to learn more about Windward and or any of the discussion topics that we brushed on today, We’re here to help. So, please reach out. Everyone, thank you for joining us today and have a great evening. Thank you.
49:32
Thank you. Have a great afternoon and have a good evening. Thank you.