Love and money

Crosby_2015-150x150Dr. Daniel Crosby, Chief Behavioral Officer

“Money is not the most important thing in the world. Love is. Fortunately, I love money.” – Jackie Mason 

Have you had a disagreement with a loved one recently about money? If so, you’re hardly alone. An American Express survey found money took the top worry spot among married couples (33%), far outpacing the second-place intimacy (11%), children (9%), and troubles with in-laws (4%).

Few things do more to induce deeply felt emotions and opinions than talking about love or money but combine them and you have a regular recipe for potential disaster. It’s no wonder then that money troubles are consistently cited as the number one cause of divorce. But as fraught as romance and remuneration can be, they lose some of their negative sting once we are better able to understand the sources of the disagreement and confusion around the topic.

Let’s consider some of the research on the topic and see what solutions we can derive from these findings:

Problem: We’re not talking about it - A survey conducted by American Express found that just 43% of us are talking about money at all before marriage. Even more shocking, 12% of married couples say they have never once in their marriage discussed their financial lives.

Solution: Money is the last thing that a “twitterpated” (to use Bambi’s word) couple wants to think about but it’s an essential part of making love last. Ensure that you discuss finances with your partner before marriage and set regular times to discuss it once you are together.

Problem: We’re not being honest about it - One survey found that nearly one in three people (31%) lie to their partners about their financial realities. Ouch! A Fidelity study found 20% of married adults have a secret debt and that just over 5% have a financial account that they hide from their partner. While lies may provide some short-term relief from a problem situation, they tend to be revealed in time and compound in thorniness.

Solution: Tell the truth, even when it hurts. All couples understand that honesty is the bedrock of a good partnership and telling the truth about money is no exception to that rule.

Problem: Even when we talk, we talk over each other – One study found that among those who are talking about money, 13% say they fight about money a number of times each month. The largest source of disagreement was around financial priorities. An even more disturbing finding by TD Bank is Millennial couples fight the most of any generation, with 36% reporting that they fight about finances every single week.

Solution: A new branch of psychology, called Financial Therapy, has emerged in recent years to take on the problems identified in this piece. Money brings with it a special set of emotional triggers and couples may be well served to seek out professionals with dual expertise in both money and mental health.

In order for us to have any shot at financial wellbeing, we must begin from a foundation of honesty, mutual respect, and clear lines of communication. Once this base is in place, we can begin to work toward a deeper understanding of our shared and divergent values around money as a couple. In next month’s post, I’ll be furthering this work around love and money by sharing some research I did last year around the five pillars of money connection and discussing what they mean for you and your partner. Until then, be kind, be honest, and keep talking.

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.

Sources:

https://www.independent.co.uk/news/business/news/money-marriage-end-divorce-day-relationships-personal-finances-slater-gordon-a8147921.html

http://about.americanexpress.com/news/pr/2010/mtc.aspx

http://about.americanexpress.com/news/pr/2010/mtc.aspx

https://consumerist.com/2011/01/17/survey-says-financial-infidelity-is-a-big-deal-for-many-couples/

Money Magazine Survey with Mathew Greenwald & Associates (2006)

https://www.fidelity.com/about-fidelity/individual-investing/fidelity-couples-study

 

A lot can happen in two weeks

Holland_F_150x150Tim Holland, CFA, Senior Vice President, Global Investment Strategist

A lot can happen in two weeks – and you don’t have to be a fan of the great romantic comedy Two Weeks Notice to know that – just take a look at the economy and markets. (I do believe Sandra Bullock and Hugh Grant are both incredible comedic actors!)

Think about it, in the past two weeks we have contended with:

  • The S&P 500 Index (S&P 500) making a new, all-time high (Chart A)
  • Q1 GDP growth coming in at a much better than expected 3.2%
  • The VIX – Wall Street’s “Fear Index” – spiking 50% (Chart B)
  • The US unemployment rate falling to a 50-year low of 3.6%
  • The S&P 500 dropping 130 points, or 4.4%, peak to trough

Chart A

SP 500 all time high

Chart B

Fear Index VIX

The torrent of good news, bad news, and market volatility begs the question, what is going on? In a word – or in a few – concerns over US/China trade relations bumped up against strong economic growth and bullish investor sentiment. Said more plainly, the US economy has been surprising to the upside and that strong performance has been reflected in a robust rally for US equities and very bullish investor sentiment. So, when President Trump took a surprisingly hawkish tone toward China many investors quickly looked past strong near-term economic performance and began to price in a potential, trade war driven, economic slowdown – and did so in pretty jarring fashion.

Bumpy markets are never fun, and we do expect volatility to persist. We also see the US and China resolving their differences over trade. For now, we remain optimistic on the US economy and US equities.

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.

Chart source: FactSet

The bond market is behaving – and that’s good news for stocks and the economy

Holland_F_150x150Tim Holland, CFA, Senior Vice President, Global Investment Strategist

Ask most folks the question, “How is the market doing?” and they will likely quote the day’s closing price for the S&P 500 Index or provide the year-to-date return for the Dow Jones Industrial Average. That’s understandable, given we often gauge near-term prosperity and economic performance by the tone and tenor of the stock market. But as important as the US stock market is – and it’s mighty important – we’d argue the US bond market is more germane to the outlook for the economy, and, somewhat ironically, it is also pretty important to the outlook for the stock market. And it’s also a heck of a lot bigger (as of early 2018 there was approximately $41 trillion in US debt outstanding vs. a total market capitalization for the Russell 3000 – which represents nearly 99% of all publicly traded companies – of $30 trillion. Those numbers have moved a bit since but not by much).

We consider the bond market more germane to the economy due to its size, the frequency with which borrowers come to it for capital, and how quickly lenders will price in a weakening of economic fundamentals. And the bond market has a meaningful impact on the stock market for all of the same reasons, as well as the fact that interest rates figure prominently when it comes to valuing individual stocks and the broader stock market (all things being equal, lower interest rates mean higher P/E ratios and higher prices).

And lately, the bond market has been behaving in a fashion that is constructive for both the economy and equities. More specifically, borrowing costs for high-yield companies aren’t increasing the way they did heading into prior recessions or growth scares (see chart A below;  a “junk bond spread” closer to 300 basis points speaks to an accommodative environment for corporate borrowing and credit); interest rates remain subdued, which is bullish for stock prices and the yield curve (a classic economic indicator) has been steepening, with the spread between the US 2-year note and US 10-year note hitting about 22 basis points after tightening down to 8 basis points during late 2018 (see chart B below). Historically, an inverted yield curve has often preceded an economic downturn, so a steepening of the curve is welcome news.

Chart AJunk bond spread 3

Chart BUS 2 year 10 year

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.

Chart source: FactSet

A good rule of thumb for valuing the market

Holland_F_150x150Tim Holland, CFA, Senior Vice President, Global Investment Strategist

Coming into 2019, Brinker Capital believed if we could solve for monetary policy risk and trade policy risk that the economy and markets would be biased higher. Well, so far, we’ve received more good news than bad on both fronts, and risk assets and the economy have responded, with the S&P 500 Index (S&P 500) up about 17% year-to-date (see chart below) and the US economy growing a much better than expected 3.2% in Q1 – though that number is likely to be revised over time. Having written that, the robust market rally to begin the year has many investors wondering whether stocks can move higher from here.

SP 500 YTD 2019

One way to think about market valuation and potential price appreciation is via “The Rule of 20.” Simply put, The Rule of 20 states a reasonable multiple for the market can be determined by deducting the rate of inflation from the number 20. The reason The Rule carries weight on Wall Street is historically the market’s P/E ratio (i.e. multiple) has more or less followed the formula (see below; the caveat being The Rule doesn’t prove relevant during periods of deflation). And once we have the P/E ratio, we multiply by expected earnings to arrive at a price target for the index, and in turn, the broader market.

Sp 500 average trailling pe

Well, inflation – as measured by the Consumer Price Index – is running at 2%, and Wall Street expects earnings for the S&P 500 on a forward four quarter basis to total approximately $172. So, an 18 P/E ratio on $172 produces a price target of 3,100 for the S&P 500 and additional gains, from today’s price, of about 6.0%.

We remain optimistic on US equities as we move forward into 2019.

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.

Chart source: FactSet

Battle of the market stars – Lou Ferrigno is earnings, ABC is stocks

Holland_F_150x150Tim Holland, CFA, Senior Vice President, Global Investment Strategist

Before there was reality TV there was, well, a lot of things including Battle of the Network Stars, which in a way was reality TV. Hosted by Howard Cosell and broadcast annually during the late ‘70s and early ‘80s, the show featured celebrities from the Big 3 networks – ABC, NBC, CBS – competing in a series of athletic events, sort of an Olympics for TV stars. It was spectacular.

We mention BOTNS as we are entering earnings season and earnings more than anything pull the market along – well earnings and interest rates, and rates are low and supportive of equity prices – and investors are worried as Wall Street is expecting Q1 2019 EPS for the S&P 500 Index to be down about 2%, the first year-on-year drop since 2016, per the chart below.

growth rate

Some fear we are facing a sustained drop in earnings and stock prices. We don’t think so, which brings us back to BOTNS and one of its most famous participants, the great Lou Ferrigno. An iconic moment in BOTNS is the 1979 Tug of War when Ferrigno, aka The Incredible Hulk from the CBS show of the same name, singlehandedly nearly pulls the ABC team into the pool separating the squads, helping win the event for his CBS team. Well, we see Lou Ferrigno as 2019 earnings and stocks as the ABC BOTNS team. Earnings might be flat to down slightly in Q1, but they should be up mid to high single digits for the year and will likely exceed estimates as the rebound in oil helps push energy company profits higher.

Growing earnings, muted interest rates, and contained inflation are all points of support for US stocks as we move through 2019 and should, in fits and starts, pull the market higher.

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.

Chart Source: FactSet

 

Traits of great financial advisors

Crosby_2015-150x150Dr. Daniel Crosby, Chief Behavioral Officer

You probably know by now that you’re supposed to have a financial advisor, you may just not know how to differentiate the good ones from the bad ones. We’d like to suggest the following as a checklist for helping you to find an advisor who can help you meet your financial goals and have a good time doing it.

They will keep you from being your own enemy - The research consistently shows that behavioral coaching is an advisor’s biggest value added, although most clients assume it is the skillful selection of investments. Look for someone you like enough to listen to and trust enough to follow their advice. If they can keep you from making a handful of big errors over a lifetime, they will have earned their fee and more.

They charge an equitable fee - Fees are more negotiable than you might imagine, especially for larger accounts. Good advisors know what they are worth and charge appropriately, but advisors charging exorbitant fees are doing their clients a disservice.

They have a niche – Some advisors specialize in working with small business owners, “women in transition” or those with values-based investment preferences. Whether you are soon to retire, have inherited some “sudden wealth” or are an entrepreneur with a great deal of value in her business, you can and should find an advisor who specializes in your particular needs.

They offer comprehensive services - Some financial professionals offer only planning or investment advice, while others offer a broad range of services. Ensure that what is offered is consistent with your needs.

They have the right credentials – Look for some combination of years of experience, appropriate certifications, and post-graduate education. The CFP is more and more becoming the industry gold standard, but many competent advisors (especially those with many years of experience) may have foregone a credential they don’t see as adding much new value to their business. Rather than looking for specific letters behind a name, ensure that they have a commitment to lifelong learning and self-improvement.

They can articulate their investment philosophy - A clear and concise investment philosophy is a sign of having given this deep thought. A corny sales pitch is a sign that you should run. People with a deep fluency in their discipline can explain what they do to a layperson. People with something to sell will try to convince you that it’s over your head.

They communicate regularly - This should be driven by your needs and preferences. Expect roughly four times per year but be sure to communicate your own expectations about how best to connect and how often to engage.

They offer a unique client experience - You are paying good money for this service and should be treated accordingly. This should include everything from courteous support staff to regular meetings to an ability to ask appropriate questions about the process. Do not be afraid to ask for what you need to be happy and well informed.

They have a succession plan - Someone asking you to think about the long term should have done so as well. It is difficult for some business owners to confront the inevitability of their own departure, but it is a sign of maturity to have done so.

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.

 

The recession has been dodged (or ducked, or dipped, or dived, or dodged)

Holland_F_150x150Tim Holland, CFA, Senior Vice President, Global Investment Strategist

Recently, more than a few market prognosticators saw the US economy headed for a recession, a not unreasonable thought given weakened corporate and consumer sentiment, a very disappointing 20,000 jobs created in February, and increasingly flat US 2 Year / 10 Year Yield Curve and inverted US 3 Month / 10 Year Yield Curve, a harbinger of an economic downturn.

While cognizant of weakening economic data as we moved into 2019, Brinker Capital believed if we solved for monetary policy risk and trade policy risk both the economy and risk assets would be biased higher. Well, the Federal Reserve put its rate hiking and balance sheet unwinding plans on hold and the US/China trade discourse improved, with signs pointing toward an imminent agreement. And, as those meaningful economic and market headwinds abated, economic data improved and risk assets rallied. More specifically, the US added a better than expected 196,000 jobs in March, the US 2 Year – 10 Year Yield Curve steepened, the US 3 Month – 10 Year Yield Curve turned positive, albeit by only about 10 basis points, per the chart below, and the S&P 500 rallied 2%+ to start the second quarter, tacking on additional gains to a very strong Q1 2019. Outside the US, efforts by the Chinese government to stimulate its economy are bearing fruit, while the European Central Bank has assumed a more accommodative monetary policy stance.

Us Treasury

Today, we see little near-term risk of a US recession and our base case for the US economy remains growth of 2% to 2.5% in 2019.

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.

Chart source: FactSet

 

Vlog: Quarter-end Q&A 1Q2019

Brinker Capital Global Investment Strategist, Tim Holland, CFA, asks and answers those questions we think will be top of mind for clients as they open their quarterly statements and think back on the quarter that was:

  1. Have we seen the high in the stock market for the year?
  2. Is the yield curve indicating a recession is imminent?
  3. What is the market and economic impact of the Mueller Report?

Q&A_1Q19-thumbnail_Blog_v2

 

 

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.

Use 19th century technology to defeat 21st century fraud

O'Hara 150x150Jim O’Hara, CISM, CISSP, CEHInformation Security Officer

March 10, 1876. Alexander Graham Bell’s Boston laboratory.

“Mr. Watson come here – I want to see you. I think someone just looted my brokerage account.”

Okay. Those may not have been the exact words spoken over the first useful telephonic device. But similar words are spoken on any given day in the modern world.

In the early 2000s, hackers and fraudsters preyed upon a burgeoning digital world. As financial institutions rushed to establish an online presence, cyber security controls were often overlooked, inadequate, and sometimes nonexistent. Regulatory bodies were slow to adjust to the new playing field as well, and firms could quite literally put their clients at risk without violating written regulations.

After a few hard lessons, smart financials became extremely focused on security, and the regulators followed suit, updating compliance requirements to counter the threats inherent in the brave new digital world. The SEC was no longer telling firms to “exercise responsibility in protecting client data.” They were now saying “deploy and maintain a stateful inspection firewall.” Seeking compliance, firms tossed out the security appliance purchased at the local office superstore and installed second generation firewalls and network intrusion prevention systems. They hired information security professionals who established security departments and put in place comprehensive technical controls and written policies. Game on.

Hackers and fraudsters soon discovered that their old tools and methods were no longer effective. It had suddenly become much more difficult to compromise the now security-savvy financial firms. What to do?

If you can’t pick the lock, steal the key. Criminal focus shifted from defeating the security systems protecting valuable data, to compromising individuals who had direct access to it. Credential theft became the hack-du-jour, and remains so to this day, in the fraudsters’ all-time favorite flavor: Email phishing.

The most effective use of phishing as a fraud tool follows this simple 3-step process:

  1. Phish the investor. Typically, in the form of an email masquerading as the victim’s email provider. The investor is asked to follow a link and validate their credentials. The linked site is usually very convincing, complete with the email provider’s current branding. The victim dutifully enters their username and password and is told “Thank you. Your account is secure.”
  2. Using the stolen credentials, the fraudster logs into the investor’s email account and reviews its contents. They watch and wait. They learn who is managing the investor’s money, how they communicate, and in some cases, they may even see prior communications related to a distribution.
  3. When the timing is right, usually around the holidays or a weekend, the fraudster jumps into an existing email message thread. They talk about how long it’s been since they’ve spoken, ask how Jenny is doing at Cornell, and then….instruct the financial advisor to perform a distribution to a newly established bank account. Usually it’s for a down payment on that dream vacation home, sometimes it’s to buy their spouse the classic convertible they’ve always wanted. A theme common to all the messages is that time is of the essence. The advisor needs to move the money quickly or the opportunity for the house or car will be missed.

Alexander Graham Bell’s invention then comes into play in one of two ways. Either the advisor calls their client and learns of the attempted fraud, or the client calls the advisor a week or two later and asks why their account is short. It’s the advisor who determines which call takes place.

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.

Vlog – To Tell The Truth

Given the news flow and data points of late, Brinker Capital Global Investment Strategist, Tim Holland, CFA, poses the question to our $20 trillion economy, “Will the real US economy please stand up?” (recorded March 28, 2019).

  Thumbnail_4-1-19

 

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.