Dinner with Janet

By: Chuck Widger, Founder & Executive Chairman

Yellen_small-2On April 4, I joined a group of 15 private sector investors for a dinner with former Federal Reserve Chairwoman, Dr. Janet Yellen. It was a delightful, insightful, interesting, and informative evening. Below is a mix of her thoughts on the economy, Fed policy, and where we are headed. I am also noting important policy nuances raised by a couple of her core economic policy principles.

Yellen has a positive outlook on the economy. She sees economic growth in 2018 and 2019 at +2.5% and +2.8%, respectively. She described the economy and the labor market to be in excellent shape and expects tax cuts and spending to lift real GDP in 2018 and 2019 by one-half to three-quarters of a percentage point above the economy’s current growth rate of 2.6%. The labor market is almost at full employment, with the potential for the unemployment rate to drop another 0.6% to a level of 3.5%. However, the labor force participation rate may not improve because of structural reasons.

Absent extraordinary circumstances, the Fed will continue on its current path and pursue a total of three increases in the Fed Funds rate this year. What might those extraordinary circumstances be? While Yellen believes there is not a lot of pressure on margins from wage costs and thus no present inflation problems, overheating from all the stimulus is a possibility. Faster growth and a tighter labor market could cause the Fed to make a policy mistake. Significantly faster and greater increases in interest rates could (and they have in the past) chill growth and lead to a recession.

In discussing the economy and Fed policy-making, Yellen showed appealing humility. She acknowledged that our monetary leaders bring their best judgment not an absolute certainty to making policy choices. For example, while commenting on the natural rate of interest, she observed, “What if it’s higher than I/we anticipate? While I have a view on what it is, I do not have absolute certainty.” Humility combined with significant intellectual talent is always an appealing character trait.

So, what are the nuances? Two points stood out. First, her emphasis on the Phillips curve as the only actual framework for understanding the relationship between inflation and unemployment, and second, her view that tax reduction and full capital expensing will have little supply-side effect on economic growth. Both raise important policy distinctions between Keynesian and supply-side economics.

Keynesian economists put greater emphasis on the Fed’s ability to fine tune the economy than supply-siders. In contrast, supply-siders favor letting the natural forces in a market economy do their thing. Yellen’s emphatic statement endorsing the Phillips Curve as the only framework for predicting the tradeoffs between unemployment and inflation is quite Keynesian. For example, if unemployment is high, the policy choice is to reduce interest rates and increase the money supply to create demand and thereby reduce the unemployment rate with little impact on inflation. This is fine-tuning through government intervention.

phillips-curve-2Yellen similarly sees the tax reform’s rate reduction as increasing demand and thereby spurring demand because consumers have more to spend. Tax reform and full capital expensing will provide only a small spur to economic growth through increased production by businesses.

Supply-side economists, like the new Chair of the President’s Council of Economic Advisors Larry Kudlow, beg to differ. They believe when businesses produce and sell more because they have more after-tax cash, they create more demand through the purchases they make and the increased wages they pay. Supply-siders really aren’t interested in the demand side of the supply-demand equation because supply will create its own demand. Therefore, there is not much need for the Fed to “fine tune” the economy. Market forces will balance and grow the economy naturally.

These are important nuances. They reflect an economist’s view on the extent to which the Fed (and the federal government) should intervene in the economy.

The reality is there is something to each of these frameworks. The emphasis on application is, and should be, a matter of degree. There are very few absolutes in economics. The pragmatic application of theory works best.

Below are a few additional pieces of information from our discussion with Dr. Yellen.

  • For the GFC (Global Financial Crisis) there is plenty of blame to go around. The Fed failed to supervise the banking system and the shadow banking system. Our banking system engaged in poor practices and pursued unaligned incentives (bad behavior). And, the markets demanded high cash returns through CDAs and mortgage-backed securities.
  • The safety net placed under the financial system post-GFC has not been endangered by the deregulation pursued by the new administration.
  • Current worries are to the upside. An “overheating” economy is of more concern than undershooting the Fed’s inflation target.
  • Another worry is the Fed continues to conduct an accommodation experiment. As it increases rates, it must balance the different risks of slowing the economy and stoking inflation.
  • The Fed is now trying to engineer a “soft landing from below.”
  • Bitcoin is speculative excess according to Yellen. One dinner guest suggested interested investors should consult the 17th Century Dutch tulip bulb mania when considering bitcoin investments.

Yellen is to be thanked for her public service and her leadership as Chair of the Federal Reserve. A record of good stewardship of a vital US institution by a personable, highly intelligent public servant offers a refreshing reinforcement of public trust in a vital US institution.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice.  

Brinker Capital, Inc., a registered investment advisor. 

Chart source: The Economics Book: Big Ideas Simply Explained. DK Publishing, 2012. pg.203

Retirement mind shifts: Be prepared so you can change your mind

CookPaul-150-x-150Paul Cook, AIF®, Vice President and Regional Director, Retirement Plan Services

If you’ve ever experienced a mind shift, you know what is meant by the saying, “there’s nothing as powerful as a change of mind.” This “ah ha” moment or mind shift is a change in focus and perception of a problem, situation, or potential solutions. Some mind shifts happen after experiencing a lightning-strike-like insight, while others evolve over time.

Recent research suggests that many individuals experience a mind shift as they approach retirement, resulting in a retirement earlier than planned and no transition period.

Retiring early  

In MassMutual’s study, Hopes, fears, and reality: What workers expect in retirement and what steps help them achieve the retirement they want, nearly half (45%) of the respondents said they retired earlier than planned.[1] In their younger years, the respondents said they believed they would work as long as possible. However, as time evolved, they changed their minds, experiencing a ‘work can retire you’ mind shift, leading them to retire early. Other factors also contributed to the number of retirees who retired earlier than planned. Changes in technology and changes at work were among the primary reasons people chose early retirement. A fair number (39%) of respondents retired early because they could afford to do so.

Even though they didn’t retire how and when they wanted, 79% of the survey respondents had no regrets about retiring when they did.

Scrapping the transition 

Many pre-retirees expect to gradually ease into retirement, or find other work once retired. A gradual transition, however, was not in the cards for the vast majority of those surveyed.  Seventy-one percent of the survey respondents stopped working all at once. They also found several barriers to re-entry into the workforce once retired, including an inability to keep pace with technology, and age discrimination.

A transitional or gradual approach appeals more when further from retirement. The closer the retirement date becomes, the more likely respondents were to say they would stop work all at once. When retirement is 11-15 years in the future, only 29% thought they would forgo a transition and retire “cold turkey.” When retirement was five to 10 years in the future, 35% said they would stop working all together at retirement, and when retirement was only five or fewer years in the future, over half (52%) said they would not continue working on any basis in retirement.

These survey results underscore the need to start saving for retirement early so you have a strong financial foundation in place well before your targeted retirement date. With a suitable financial backdrop, comes the financial freedom to abandon plans to “stick out” work until a certain target retirement date. Instead, you could follow through on your mind shifts, reimagine your retirement to focus on outcomes, and pursue new goals and opportunities.

Brinker Capital Retirement Plan Services works with advisors to offer plan sponsors the solutions to help participants reach their retirement goals. When plan sponsors appoint Brinker Capital as the ERISA 3(38) investment manager, this allows them to transfer fiduciary responsibility for the selection and management of their investments so they can focus on the best interests of their employees.  This fiduciary responsibility is something that Brinker Capital has acknowledged, in writing, since our founding in 1987. To learn more about Brinker Capital Retirement Plan Services, call us at 800.333.4573.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.

[1] “Hopes, fears, and reality: What workers expect in retirement and what steps help them achieve the retirement they want” MassMutual 2016.

Investment Insights Podcast: As the first quarter comes to a close…

Andrew Goins
Investment Manager

On this week’s podcast (recorded March 29, 2018), Andrew reviews the markets as the first quarter comes to a close.

Quick hits:

  • January was very much a continuation of the momentum driven market of 2017, with the S&P 500 up 5.73% for the month, but that all changed as we rolled into February.
  • In addition to fears over trade wars and tariffs, a privacy scandal at Facebook as well as rhetoric around increasing regulation on mega cap tech companies has wreaked havoc on the FAANG stocks.
  • Despite the more recent weakness in the tech sector, growth stocks are still ahead of value so far this year.
  • We believe that active managers are positioned well to continue to take advantage of the higher volatility that is likely here to stay and should benefit as investors put a premium on quality and valuation.

For Andrew’s full insights, click here to listen to the audio recording.

investment podcast (24)

This is not a recommendation for Facebook, Amazon, Apple, Netflix and Google. These securities are shown for illustrative purposes only.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Getting your investments up to bat

Williams 150x150Dan Williams, CFA, CFPInvestment Analyst

With spring comes my favorite time of the year. Yes, the weather improves and the days get longer. However, for me, it is baseball season and corresponding fantasy baseball season that excites me. Baseball more than the other major sports is a game of statistics. It is engineered to be a series of one on one duels between a hitter and a pitcher such that individual contributions can be isolated. However, much like investing, a focus on the short-term and randomness leads even the most astute into a false knowledge of skill, and it is only through long-term analysis can truer knowledge be gained.

Consider a single at-bat between a hitter and a pitcher. The outcome is going to be a hit, an out, or a walk. If a hit occurs, especially if a home run, it is assumed that at least at that moment the hitter is very good and the pitcher is very bad. If an out occurs it is assumed the reverse. If a walk occurs the hitter has managed the least favorable of the positive outcomes and the pitcher has let the least unfavorable of negative outcomes happen. There is additional analysis that can be taken into the semantics of these three outcomes but the point remains that we have a data point of an individual success or failure. Similarly, in investing over the course of a quarter or year of performance of an investment fund we have an outperformance, underperformance, or an approximate market return relative to the corresponding benchmark and again additional stats can be gleaned from the performance such as standard deviation, upside capture, or attribution by sector selection vs. security selection.

In both cases after a short time period, a game for a hitter/starting pitcher or a quarter of performance for an investment fund, the temptation is very strong to extrapolate the just observed outcomes into the future. A successful hitter could have been lucky or was going against a poor pitcher (or a good pitcher who was having an off day). Similarly, an investment fund could have made a few lucky stock picks or was in a market environment that simply worked well with the strategy’s style of investing.

getting your investments up to bat

So does this mean we ignore the statistics of the short-term? That is, of course, foolish as the short-term is what happens as we build the data for the long-term. We always want to know what happened as it helps guide us to what will happen. It is simply wise to temper the conclusions we can draw from data over short periods. It is also humbling to know that even with ample data that can provide very close to proof of past greatness, it can never be fully relied on to provide future insight. At this point, I would say we have enough data to say Babe Ruth was a very good baseball player. However, he has been dead for about 70 years (so he is in a bit of a slump) and even if we through the miracle of science could resurrect a 30-year-old Babe Ruth, it is not a certainty he would achieve the same greatness in today’s baseball landscape. Similarly, an investment fund or strategy type that achieved great success over the long-term in the past may not achieve it in the future.

So where does this leave us? The recognition of great skill recognized solely in the short-term is unreliable and the great confidence we can achieve through the very long-term analysis thereof is not very useful. This leaves us striving for the middle ground. We look at performance data of at least a few market cycles and we additionally gain extra insight through qualitative data by talking to our investment managers and understanding the how of what they do. Through this process, we strive to send the right people up to bat and hopefully, we deliver more winning than losing seasons.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.

President Trump, trade & the markets…Is it time to hit the panic button?

Tim Holland, CFASenior Vice President, Global Investment Strategist

On this week’s podcast (recorded March 23, 2018), Tim discusses the Trump Administration’s trade policies and its impact on Brinker Capital’s portfolio positioning.

Quick hits:

  • Investors have been fixated on the Trump Administration’s trade policy. First, the proposed tariffs on steel and aluminum imports and now talk of much broader based action directed at China.
  • After rallying strongly off its February lows, the S&P 500 has been correcting on increasing concerns protectionist trade policies will torpedo consumer and corporate sentiment and spending, and ultimately the stock market.
  • We remain bullish on the economy and risk assets, including US stocks. Why? Simply put, the hard and soft economic data – or maybe said another way, reality, not rhetoric – tells us we should.
  • 4 BIG BOXES that help drive our thinking: fiscal policy, monetary policy, economic fundamentals, and sentiment.

For the rest of Tim’s insight, click here to listen to the audio recording.

investment podcast

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a registered investment advisor.


Get more out of your charitable giving

Wilson-150-x-150Thomas K.R. Wilson, CFA, Managing Director, Wealth Advisory

Typically, when we think about giving to charity, we think of all the lives we enrich by our support. What we sometimes overlook is how great it feels to do good.

As Elizabeth Dunn and Michael Norton explain in their book, Happy Money: The Science of Smarter Spending, “Giving and happiness are mutually reinforcing, creating a positive feedback loop.”

Covering a broad spectrum of research studies, Dunn and Norton demonstrate how those who enjoy the emotional benefits of giving feel good about themselves and tend to behave more generously in the future. They also explain that those who give to others feel wealthier than those who do not make donations, and when prosocial spending is done right, even small gifts can increase happiness.

The best way to make sure you get the most emotional benefit out of your charitable giving is simple: make your gifts about you.

YOUR choice

Reaching into your pocket when you feel backed into a corner does not strike the pleasure centers in the brain as much as when you open your wallet because you felt compelled out of a sense of purpose to do so.

Part of YOUR big picture

Next to saving for retirement and college, charitable giving is one of the top financial priorities for many American families. It has earned a seat at the financial and estate planning table along with other financial goals, yet many people overlook philanthropy when setting and prioritizing financial goals.

When you make charitable giving part of your larger financial and estate plan, you can be assured that your generosity does not negatively impact any of your other financial goals and that you gain all applicable tax benefits.

Speak to who YOU are as a person

The charitable contributions you make should reflect your most deeply held values and beliefs. Before you write your next check to charity, stop to clarify your beliefs and preferences. Do you want to end hunger, fight domestic abuse, spur economic development in your community, or eradicate cancer? Think about where you want to make an impact globally, nationally, or locally. Do you want to give to many or few? Make a list of the top three to five causes that speak to your soul. The smaller the list, the more focused your giving, and the better you will feel.

Parameters set by YOU

If you are like many other givers, you don’t know how much you’ve given to charity until tax time. By establishing a charitable budget each year, you can make better decisions about funding levels for individual causes and initiatives. With the changes brought about by the Tax Cuts and Job Act, you should speak to your accountant about having your charitable donations distributed via RMDs or see if bundling your donations are right for you.

Organizations YOU trust

Whenever you make a donation,  it is a good idea to verify that the charity is legitimate and is capable of making an impact and fulfilling its mission. You can find information about a not-for-profit’s tax-exempt status, mission, and finances at Charity Navigator, Wise Giving Alliance, or Guidestar.

Make the impact YOU want

If you don’t specify how you want your gift to be used, the not-for-profit organization will likely spend the money on their top funding priorities. In some, but not all instances, the organization’s top funding priorities align with your interests. You can, however, make a restricted gift. In doing so, you earmark your dollars to serve a specific purpose, spelled out clearly by you in a written letter of instruction.

For 30 years, Brinker Capital has served financial advisors and their clients by providing the highest quality investment manager due diligence, asset allocation, portfolio construction, and client communication services. Brinker Capital Wealth Advisory works with business owners, individual investors, and institutions with at least $2 million. To learn more about the services available through Brinker Capital Wealth Advisory, call us at 800.333.4573.

The views expressed are those of Brinker Capital. Brinker Capital does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. 

Brinker Capital, Inc., a registered investment advisor.

Investment Insights Podcast: 1 in 9.2 quintillion

Chris HartSenior Vice President

On this week’s podcast (recorded March, 16 2018), Chris talks about the parallels between March Madness and investing.


Quick hits:

  • Much like the task of filling out a perfect bracket, which currently stands at 1 in 9.2 quintillion, the chances of correctly predicting drivers of future returns is nearly impossible even for skilled investors.
  • Many have heard the term momentum in the stock markets, and behavioral finance will tell you that novice investors chase performance by allocating to last year’s winners under the guise that results for this year will be the same.
  • While picking the occasional upset is possible, most of the time fans are wrong relying on intuition or gut feel to pick an upset, and it costs them.
  • Brinker Capital knows how difficult it is to achieve successful outcomes, and has investment disciplines in place to help protect and build wealth over the long term.

For the rest of Chris’s insight, click here to listen to the audio recording.

investment podcast (23)

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

The financial advisor as emotional coach?

Crosby_2015-150x150Dr. Daniel Crosby Executive Director, The Center for Outcomes & Founder, Nocturne Capital

One of the reasons psychologists can charge $200 per hour to ask, “How does that make you feel?” is because we have become great at putting fancy-pants labels on things that would otherwise be very intuitive. Take for instance the tongue-twisting “affect heuristic,” which is simply a reference to our tendency to perceive the world through the lens of whatever mood we are in.

For example, when giving a seminar on risk assessment, I often ask participants to write down the word, that if it were spelled phonetically, would be “dahy.” Go on, write it down and don’t over think it. It turns out the way you spelled the word has a lot to do with the kind of day you are having. Those that spelled the word as “die” may need a hug, while those that spelled the word “dye” are probably doing fine.

Ask someone having a bad day (those that wrote “die,” I’m looking at you) about their childhood and they are likely to tell you how they were chubby, had pimples, and never got picked first for kickball. Conversely, ask someone having a good day about their childhood and they are likely to recall summers in Nantucket and triple dips from the Tastee Freeze. Memory and perception are moving targets colored by our mood, not infallible retrieval and evaluation machines through which we make unbiased decisions.

financial advisor as emotional coach

So, what is the moral of all of this psychobabble? Think back to the last time you went shopping when you were hungry. Once you’ve brought that to mind, think back on the contents of your shopping cart. If you’re like me, you probably had a whole mess of HoHos, DingDongs, Nutty Buddies and Diet Coke (you don’t want to get fat, after all), but nothing very healthy or substantive.

The same rules apply to any life decision requiring risk assessment; if you try to make decisions when you are happy/sad/angry/in love/anxious/worried/euphoric, you are likely to end up with a life full of junk. When speaking to investors about the affect heuristic, I borrow an acrostic from the addiction literature – H.A.L.T. – which stands for hungry, angry, lonely or tired. The 12 step and other programs encourage those in recovery not to make decisions when they are in any of the emotional states described in H.A.L.T. and this advice is just as sound for investors. You do not view investment risk independent of your emotional state and so making long-term financial decisions in a short-term elevated emotional state should be avoided altogether. For help avoiding excessive emotion, try one of the following:

  • Exercise vigorously
  • Redefine the problem in terms of longer-term goals
  • Limit intake of caffeine and alcohol
  • Talk to a friend or your financial advisor
  • Don’t react right away
  • Shift the focus of your attention
  • Label your emotions
  • Write down your thoughts and feelings
  • Challenge catastrophic thoughts
  • Control whatever aspects possible including diversification and fees

The Center for Outcomes, powered by Brinker Capital Holdings, has developed an educational program to help advisors employ the value of behavioral alpha across all aspects of their work – from business development to client service and retention. To learn more about The Center for Outcomes and Brinker Capital, call us at 800.333.4573.

Brinker Capital is a privately held investment management firm with $21.7 billion in assets under management (as of December 31, 2017). For 30 years, Brinker Capital’s purpose has been to deliver an institutional multi-asset class investment experience to individual clients. Brinker Capital’s highly strategic, disciplined approach has provided investors the potential to achieve their long-term goals while controlling risk. With a focus on wealth creation and management, Brinker Capital serves financial advisors and their clients by providing high-quality investment manager due diligence, asset allocation, portfolio construction, and client communication services. Brinker Capital, Inc. is a registered investment advisor.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital, Inc., a registered investment advisor.


Investment Insights Podcast: March 2018 market and economic outlook

Leigh Lowman, CFA, Investment Manager

On this week’s podcast (recorded March 9, 2018), Leigh provides a brief review of February markets.


Quick hits:

  • Market volatility came roaring back in February with the VIX index surging to levels last seen in 2015 and washing out signs of complacency that were present earlier in the year.
  • The S&P 500 Index finished the month down -3.7% and is up 1.8% year to date.
  • Developed international equities underperformed domestic equities for the month.
  • Within fixed income all sectors posted negative returns.
  • Overall, we continue to remain positive on risk assets over the intermediate-term.

Listen_Icon  Listen to the audio recording.

Read_Icon  Read the full March Market and Economic Outlook.

market outlook (2)


The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.


Vlog – Trade wars are bad for business; Fortunately, we aren’t in one, yet

Brinker Capital’s Global Investment Strategist, Tim Holland, provides perspective on the Trump Administration’s tariff announcement.


The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a registered investment advisor.