Fully Invested.

 

Newsletter articles and blog posts to help you navigate the markets.

 

Gwen Leonares Gwen Leonares

What a difference a year makes. How about 30?

Originally posted on January 12, 2024.

A year ago (January 2023) we were licking our wounds after one of the worst years ever in both stocks and bonds. 

At the time, we wrote a newsletter that said in part, “If you suspect that you won’t touch the money until 2028 or beyond, you might continue to consider stocks as a powerful path to building wealth.” 

What a difference one year can make. The stock market rallied more than 24% in the 2023 calendar year after falling over -19% in the 2022 calendar year. As of today, the S&P 500 is within spitting distance of all-time highs last reached in January 2022.  

Many people dislike the endless volatility of stocks, and who can blame them. The huge swings up and down often have clients wondering, “What are some alternatives to stocks in my portfolio?” 

There’s no doubt about it, the stock market can be a wild ride. But when it comes to the potential to turn a little bit of money into a lot of money over time, it’s hard to recommend anything else for long-term investors. Consider the following chart from Bespoke Investment Group (used with permission):

If you’re reading this on your phone and the chart is too small to see, the takeaway is that the green line is stocks, and the yellow, blue, purple and gray lines are gold, residential real estate, bonds and commodities, respectively. Stocks have blown other asset classes out of the water over 30 years. 

Though we may choose to add something like gold, residential real estate, bonds and/or commodities as part of a diversified portfolio, the fact is they have not grown nearly as much as stocks over the prior 30 years, and they are not expected to over the next 30 years.  

While the chart accurately points out that stocks “trump” other asset classes over the long run, it’s worth mentioning what’s top of mind for almost every investor we talk to these days: The 2024 Election. Stay tuned, next month we’ll be talking about the danger of getting political when it comes to investing. 

Until then, we hope you’re having a lovely start to 2024. Talk soon!

Sara, Kacie, & Amy

Read More
Gwen Leonares Gwen Leonares

If we could teach our girls only one thing about investing, it would be this.

Last month, Sara reunited with some of her basketball friends playing in the Austin Women’s Basketball League:

The last time she was able to play basketball in person with them was the week of March 12, 2020, just before her twice-weekly games were shut down due to Covid.

A lot has happened with us all since then. One friend asked if she could put us in touch with her daughter, an impressive young person who decided to join the Navy after graduating from high school. Her enlistment bonus was larger than either of them had expected, and Sara’s friend wants her child to learn how to invest, asap. 

When we teach classes about investing, or chat with parents about teaching kids about money, one of the questions people ask us is: “What are you teaching your daughters about money and finance?”

Hands down, the most essential financial concept all of us should know is the power of compounding.

“Compounding” is the way investments grow over time. But it needs a lot of time. In fact, the most important element in the compounding process is TIME, not money. Don’t misunderstand us, money is also very important, but without time, there’s no compounding. 

There are plenty of mathematical formulas that we use to describe exponential growth, but you don’t need to get out the graph paper to understand the concept.  The way I think about compounding is: How many times can you double your money before you need to start making withdrawals? 

For example: If we expect the value of an  investment - let's say a stock - to double every 10 years, and you’re invested from age 25 to 65, your money will be invested forty years:  four rounds of doubling. One dollar invested turns into two, turns into four, turns into eight, turns into 16. 

If you start later and you only have 20 years of compounding, you go through that doubling cycle only twice. Starting later means you have to save a significantly bigger chunk of money to get to the same point as if you had started earlier with much less money. Finding that additional savings is what we focus on as part of the financial planning process. 

So, when people who haven’t started investing yet ask for our secret strategy, they may expect a complicated playbook with ticker symbols, market trends and tax loopholes. But we always tell them the same thing: The best system to earn money for the future is the system that will get you into the market today. When it comes to investing, the best move is always the one that you can start now, no matter how simple. There will be plenty of time later to refine your strategy, update your goals, and increase your contributions. 

If this is overwhelming, don’t worry… you’re in good company. Over a quarter of Americans over 59 haven’t started investment accounts, and about 50% of women ages 55 to 66 have no personal retirement savings, compared to 47% of men​​. But you can, and you will. Here are some ways to get assistance:

Read More
Gwen Leonares Gwen Leonares

Silicon Valley Bank and FDIC Insurance

The NBA star Giannis Antetokounmpo had dozens of accounts at different US banks with $250,000 in each one. He knows that $250,000 is the per person limit at each bank to qualify for FDIC insurance. Why did this young athlete take the time to learn US banking regulations? Because Giannis was born and raised in Athens, he witnessed Greece’s 2008 financial crisis up close and personal. As a result, financial regulation was probably more important to him than the average investor.

Giannis Antetokounmpo is cool as a cucumber knowing his bank deposits are FDIC-insured. (Source: Fansided)

When it comes to the failure of Silicon Valley Bank, we can take a couple pointers from Giannis's banking habits before a crisis hits.

1. What happened?

News will continue to come out as regulators parse through the bank’s records, but it appears that this was an old-fashioned bank run.
 
Silicon Valley Bank had many start-up and tech companies as clients. As those industries grew, they deposited more and more cash with Silicon Valley Bank. Silicon Valley turned around and made loans (as banks do) and also bought very safe – but longer term – Treasuries and mortgage-backed bonds.
 
In 2022, declines in both the bond market and stock market made it harder for companies to raise money from new investors. Start-up and tech companies started to withdraw cash instead of deposit it. In 2023, withdrawals accelerated and Silicon Valley Bank struggled with redemption requests. Panicky venture capitalists told their portfolio companies to withdraw their money last week. A flood of redemptions ensued, causing an old-fashioned bank run. On Friday, the FDIC stepped in and closed the bank. Additionally, the Federal Reserve said they would guarantee and make all depositors whole, even those with accounts above the FDIC limit.

2. Does this impact me directly?

No, almost certainly not. If you have accounts at Silicon Valley Bank, please let us know. No client accounts managed by Black Barn directly own any shares of Silicon Valley Bank or CDs issued by Silicon Valley Bank. 
 
While you may indirectly own shares of Silicon Valley Bank inside your mutual funds and/or exchange-traded funds, the exposure is minimal.

3. What should I do about my bank accounts now?

Your cash is protected up to FDIC insurance limits. Each person is insured up to $250,000 at each bank where they have accounts. Joint accounts are insured up to $500,000.
 
Like Giannis, we are careful when we invest in bank CDs, making sure we don’t commit more than the FDIC limit in any one bank. But, if you keep a lot of cash and want to check whether you are potentially exceeding FDIC insurance limits, we can help. Please collect the name(s) of your bank(s), name(s) of the account owner(s), and account balances for each. Include savings, checking, high-yield savings, and certificates of deposit. We will cross-check your accounts with any cash and CDs you have at TDA/Schwab to ensure you are under FDIC insurance limits, and we’ll let you know if there is any action to take. 

4. Is this a replay of 2008-2009?

No.
 
As a whole, the financial system is in very good shape, thanks to the additional regulations put in place after the Great Financial Crisis (specifically, the Frank-Dodd Act). The financial system is much stronger now than it was then. 
 
That said, there’s no reason to take any risk with cash you keep in the bank. FDIC limits are there for a reason.

Read More
Gwen Leonares Gwen Leonares

To 2023, and beyond.

Originally published on January 5, 2023.

Black Barn Financial has exciting news to share!

I am delighted to announce that Kacie Swartz, CFP®, CIMA®, is joining Black Barn as our newest Managing Partner and wealth advisor.

Kacie has been in the financial services industry since 2001 and has been a CERTIFIED FINANCIAL PLANNER™ practitioner since 2012. For over 20 years, Kacie has been committed to simplifying financial concepts and making financial literacy accessible to everyone. You will be receiving additional information about this expansion to our team in the weeks ahead. I’m thrilled to welcome Kacie to the Black Barn team!


As many of you know, I used to teach classes about investing and the stock market. In class we spent a lot of time looking at charts and thinking about what we could have done (or should have done) during past market selloffs.

 
Calendar year 2022 was pretty bad for stocks (the S&P 500 is down 19.4%), and historically bad for bonds (AGG, a total U.S. bond index, is down 15%). It makes sense that as we move into 2023, we’re thinking “What’s in store for us this year?”

The answer is not simple. Down markets follow up markets and up markets follow down markets. We can never know in real time where we are in the cycle.
 
So if we are going to take some action – buy, sell, hold – we shouldn’t do it because we think we know where the market is going in 2023, but because we have some idea of where we are – as investors – and where we are going.

When I look at charts, I purposefully use a longer time horizon. I tend to think about wealth building in incremental terms over decades because it’s what I most often see. I have the privilege of talking to people about something that is rarely talked about in “polite company.” The truth I’ve gleaned from their money stories is that the vast majority of people who have financial security did not get there quickly. They did not invest in the next big thing before it was the next big thing. They did not have a feeling about when they should jump out and when they should jump in. And they did not get to skip the downturns.

Take a look at the chart below and imagine what was (or what would have been) going through your mind in 1974, 1987, 2001 or 2008. Do you remember what you were thinking in 2020? In what years should an investor have sold stocks? In what year should they have bought, or at the very least held on?

Source: Yahoo! Finance, retrieved January 4, 2023.

 Every investor is at their own place on life’s path. Some are living off their investments now, some won’t start living off of investments for decades. Some are going through major life transitions, some are settling into a period of relatively little change.

 
The planning process puts you at the center of the decision making. If you know that there is money you’ll need in the next 12-24 months, one possible strategy is to carve it out and set it aside in something safe and predictable like Treasury bonds or CDs yielding 4.0 - 4.8%.
 
If you suspect that you won’t touch the money until 2028 or beyond, you might continue to consider stocks as a powerful path to building wealth. There's plenty of historical data to support the stocks-for-the-long-run mentality. In a recent post, Ben Carlson shared that, since 1950, the average 5-year cumulative return following a decline of 25% from all-time highs is, get this…83.3%. And that's just the average which means some returns were much higher. But because I'm sure you're curious, the worst 5-year return was 21.5%. Of course, as you know, past performance is no guarantee of future returns. 
 
Comparatively, a very conservative investment in 5-year Treasury bonds is around 3.9%. Over five years, that's a cumulative return of 21.1%, which is on par with the worst historical experience with equities.
 
Your path will be different from your neighbor’s path, and that’s a good thing. Every investor has different needs and tolerance for risk. As we all work our way through 2023, consider taking a look at all of your specific financial resources to find the balance that can best serve you and your family this year and in years to come.

Read More
Gwen Leonares Gwen Leonares

Silver Linings of a Market Downturn

Originally published on October 2, 2022.

As I’m writing this email, we’re at, or near, this year’s lows. The underlying causes are still the same: The Federal Reserve is fighting inflation with higher interest rates, and markets are having a hard time adjusting. Trading algorithms are also kicking in, leading to a mass selloff across stocks, bonds, energy and real estate. When different investments all fall at the same time, it can be demoralizing.

Bear markets are a grind. Staying invested is a discipline that patient long-term investors have to develop, and it feels like trial by fire. 

On the flip side, money invested in a bear market often has the highest rate of return after several years. Legendary value investor Shelby Davis said, “You make most of your money in a bear market; you just don’t realize it at the time.”

To illustrate the point, here’s an updated version of the S&P 500 chart:

Downturns in 2008, 2018, 2020, and 2022 are marked in red. Market recovery and growth, in blue, take their time. Between 2006 and market close this past Tuesday, patient investors in the S&P 500 saw their money grow by 192%. Source: Yahoo! Finance, retrieved September 27, 2022.

It’s a pretty compelling chart if you have a multi-year time horizon. But as much as I like the wealth-building power of stocks over time, I don’t know anyone who owns only stocks. We all live in the real world, where cash and very low risk investments are the bridge that get us safely from point to point in the present day. Cash can come from monthly income (wages, social security, etc.) and/or from savings you’ve previously set aside in bank accounts and/or investments.  


For the cash you have set aside, there are actually some silver linings in this tumultuous market. For the “safety blanket” portion of your portfolio that you want to keep stable, consider these options:

  • FDIC-insured savings accounts now pay a decent amount; for example, Ally’s high-yield savings offering pays 2.10% (as of Sept 6, 2022) and Marcus is paying 2.15% (as of Sept 22, 2022). If your savings account is not earning that much, consider moving your cash to earn more with no risk.

  • U.S. Treasuries and FDIC-insured CD rates are way up. If you’re able to lock up cash for a short period of time  in exchange for a higher rate, then these are great options. For example, a 12-mo CD from Morgan Stanley is currently paying 4.05% (Note that rate quotes change frequently these days.). We can purchase brokered CDs for you in your TD Ameritrade accounts. You can also check what is on offer at your local bank or credit union. Just respond directly to this email and we can chat about the details. 

  • Inflation-linked Bonds (I Bonds) are a great option if you have a five year time horizon. If you buy before the end of October, you can still lock in a 9.62% interest rate for the next six months. After that, the interest on your bonds will adjust (probably lower) every six months to whatever the inflation rate is during the adjustment period. Remember you’re limited to $10,000 for each calendar year. The details on I Bonds can be very confusing, so make sure you go to TreasuryDirect.gov to learn more.

For your long-term investment portfolio, I am looking for ways to boost future returns and/or reduce taxes. Depending on the investment strategy that you and I have crafted together, these are some of the tactics we can deploy:

  • Tax loss harvesting may lower your tax bill in 2022 and possibly in future years. The Black Barn team has already started this process in taxable accounts, and you can expect to see more activity as we move toward the end of the tax year.

  • Roth conversions may reduce your future tax liability. This is a great move in a bear market IF you expect that your tax bracket today is lower than what it might be in the future. A Roth IRA is also a great estate planning strategy as it gives you potential to leave a tax-free asset to future beneficiaries. We’ll be in touch if this applies to your situation.

  • If you have a long term outlook and extra cash/income to invest, then adding to stocks while others are panicking is a tried and true way to build real wealth. It’s not for everyone, but remember that the expectation is that the stock market doubles every 7-10 yrs on average

Read More
Gwen Leonares Gwen Leonares

Three Strategies to Withstand the Bear Market

We’re investing for the long run, which means now is still not the time to panic. Here’s what you can do right now.

Uncertainty is the only certainty, according to John Allen Paulos. Based on historical stock market returns and the volatility we’ve experienced this year, I’m inclined to agree. While we may not have been able to foresee the specifics of this situation, the good news is that we can continue to plan and prepare for extended periods of market downturns while waiting to take advantage of the recovery. We’re investing for the long run, which means now is still not the time to panic. Here’s what you can do right now:

  1. Treat your portfolio with care. Instead of selling out of the market or making emotional decisions, now is the time for careful changes, seeking out opportunities, and adjusting goals if the volatility is keeping you up at night. If you’re worried about your investments, reach out to a professional for a financial check-up.

  2. Revisit your emergency reserves. If you’re worried about loss of income this year, make sure you’ve got enough to avoid tapping your long-term investments ahead of schedule. A trusted advisor can help you identify your first, second, and maybe even a third source of cash if you think you’ll need it.

  3. Build flexibility into your approach. We don’t know when the stock market will return to normal, but we can think about your plan A, plan B, and even plan C for 2022. This kind of contingency planning is a great way to fight anxiety and build inner calm.

P.S. For those of you who enjoy podcasts, my friend Caitlin and I recorded a longer discussion about investing in bear markets on our Women on the Verge of a Financial Breakthrough podcast (heads up, there is a little bit of adult language). 

Read More