4 Kinds of Investors

ST. CROIX INSIGHTS

4 Kinds of Investors

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

Photo by Alec Favale on Unsplash

For many, including myself, it’s easy to get fixed on one number: the value of our accounts. We never want or expect that number to drop below the number we have in mind. If my account value says $1,000,000 (or $100,000 or $10,000), but the following month my investment statement says $800,000 (or $80,000 or $8,000), I’m not happy about it, and I suspect neither are you when it comes to your own statements! But the fact is, markets fluctuate over time—and so do our investment account values.
When I look back over the past twenty years (boy, I sound just like my parents), I see three major market downturns: In 2001, the stock market went down 48%. In 2008, it went down a whopping 59%. And as recently as 2020, it went down a mere (!) 35%. And here we are in 2021, with the stock market continuing to reach all-time highs. While I may not always be happy about it, markets go up and markets go down; that’s what markets do.

As I’ve gotten older, so have our clients, and our time frames and expectations continue to change over time. That’s just the natural progression of life. Wouldn’t it be ideal if you and I could get significant returns during every stage of our lives, year after year, without any downside/market risk? Just think: all the fun and none of the drawbacks when it comes to investing. Who wouldn’t love that?

Sigh. It’s a nice dream, but expecting markets not to experience cycles given our financial markets is simply unrealistic. Well, we may not live in a world without risk, but we can each decide what level of risk we consider acceptable for our accounts.

As an investment/wealth advisor, I needed a reliable way to determine the level of risk an investor is comfortable with for their investments. It seemed to me that investors fell naturally into one of three levels of risk tolerance. I came to think of these categories as Ferrari, Minivan, and School Bus.

Many of you have heard me use this analogy. (I have three Hot Wheels on my desk as my visual reminder.) Every time I mention these visual images, my right-hand man Mr. Lewis rolls his eyes. Yet I chuckle quietly to myself every time I hear him quoting me using my own analogy. It must be good if Mr. Lewis is using it! These categories are understandable and relatable no matter your financial background. Each immediately conjures a certain image, and each implies a level of risk that has nothing to do with how much money one has. Let’s take a look.

#1: The Ferrari

The first type of investor is the Ferrari. Just like all the other types, these investors seek big returns, and they are willing to accept the downside risk associated with those significant returns. That’s the biggest difference with this type of investor: they won’t lose sleep over the kinds of losses we experienced over the last twenty years.

In fact, very few individuals fall into this category. We may admire Ferraris from afar, but when it comes right down to it, not many of us can look that kind of risk in the face and keep our cool. If this isn’t the approach for you, you may fit into the next investment category.

#2: The Minivan

The second type of investor is the Minivan investor. They know they’ll arrive at their destination, but they don’t seek the level of risk that comes with driving a Ferrari to get there. Plus, the cost of owning a minivan is a lot lower—and if you crash a minivan, chances are good that you’ll survive.

This type of investor is the most common. It’s the “happy medium” intersection of risk and reward that most of us are comfortable with: steady growth and acceptable risk. (If you are wondering, most of the time, I’m in the minivan.) But if even this moderate risk feels like too much, you might identify with the third type of investor.

#3: The School Bus

The third type is the School Bus level of investor. We generally don’t hear about a school bus crashing. (When I was a kid, they didn’t even have seatbelts.) With a school bus, you know you’ll arrive at your destination eventually, and the thought of driving a Ferrari or Minivan just isn’t appealing.

This type of investor is the second most common: they are more concerned with holding on to what they have and most comfortable when they can minimize most of their risk, even if it means taking a little bit longer to get where they want to be.

Bonus #4: The Park Bench

I’ve learned in my old age that we have a fourth type of investor: the Park Bench. Some investors, in moments of extreme economic uncertainty, simply want their money to rest and be at ease. They know that it’s not best to let 100% of their resources sit idle for the long term, but there are times when they feel too uneasy about what’s happening in the markets to want to participate in them.

If you’re losing sleep at night over uncertainties and you’d rather sit and wait on the sidelines, at least for now, you may be a Park Bench investor.

What’s Your Investment Style?

As investors, you and I have invested our dollars in each of these four categories at some point. Yet the most significant factor in determining which type of investor you are is your percentage of allocation in stocks, bonds, and cash.

As you go through life, you may find yourself in one category today and a different one ten years from now. You may find yourself returning to the one you left ten years prior because an investment opportunity arose. That’s natural. That’s investing. That’s life.

Wherever the markets are in their cycle, whatever fluctuations our investment statements reflect, it’s important not to lose sight of our long-term investment strategies and our objectives for growing and protecting our resources.

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Ask yourself- can my portfolio support my lifestyle in my retirement? 

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Hello, 2021! We’re glad you arrived

ST. CROIX INSIGHTS

Hello, 2021!
We’re glad you arrived.

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

Not everyone does New Year’s resolutions. Sometimes I do, and sometimes I don’t. Sometimes I’m successful in completing them, and sometimes I’m not.

One resolution I adopted (and actually maintained) over this past year was to ask myself two key questions around nearly every decision I made. Some of you may already ask yourself these questions when faced with a decision without even realizing it.

About two years ago, my best buddy Terry turned me on to a book called Your Money or Your Life by Vicki Robin and Joe Dominguez. The first ninety pages or so had me hook, line, and sinker. The book didn’t say anything you or I don’t already know, but the information was, as they say, “presented in an impactful way.” It certainly impacted me.

Let me back up a bit. Terry wanted to help his kids prepare financially for today and tomorrow, so with the book as our guide, we set ourselves on a journey. Over the course of six months, we started having “family meetings” every few weeks to help his kids prepare for their money, life, and dreams, not only for today, but also for the future inheritance they would receive one day.

Money is not always easy. Sometimes it’s complicated. And it’s almost always a pain to think about, let alone deal with. (Three key reasons I do what I do.) Your Money or Your Life helped us get our minds right and broke down the whole journey for us so we could see clearly what decisions were or weren’t in alignment with achieving our goal.

During these family meetings, I began to share my own personal financial journey, which I’d been learning or relearning, not only from this book but in my daily walk of life. I felt I needed to join Terry and his family on this important transformation. That’s how I started asking myself two key questions at the onset of any financial decision:

  1. Does this simplify my financial life?
  2. Do I want to spend my life energy on this?

Today, if it doesn’t simplify my financial life, I’ll pass—and if it doesn’t cross the threshold of something I’m willing to work night and day to have, I won’t spend my life energy on it. Put another way, if I don’t need it, I won’t buy it or direct my financial resources, time, or energy toward it.

Around the time of these family meetings, my car lease was up on my Honda Accord (I know—such a fancy car you drive, Brett). I asked myself, “Do I really need to lease a new vehicle? Do I want to spend my life energy on making the monthly payments?”

The easy option was to just push the decision down the road and lease another vehicle. (Who doesn’t love that new car smell?) I was tempted. I took a few test drives and even brought a new car home for the day. (Dealers will let you do that, you know. After all, they want to sell you a car!) Plus, as a business owner, I could deduct the lease payments. It would all be so easy.

Or, the alternative: I could just purchase the Honda outright, have no car payments for the next ten years, and plan on paying cash for the next car.

At the next family meeting, I was able to share that I had just purchased the car outright and planned on driving it into the ground before purchasing the next one. If I hadn’t read Robin and Dominguez’s book and had the discussions I’d been having with Terry and his family, I know I would have made the “easy” decision—and paid for another lease each month.

Our society tells us we can have it all, even when our checkbooks say otherwise, and society makes it far too easy to have things today and pay for them tomorrow, the next month, and the month after that. But no matter what short-term need we’re addressing when we spend what we don’t have, debt limits our future lifestyles.

Put another way: debt sucks.

That’s why I continue to use a dream board to stay focused on what’s most important to me and remind myself where I should be directing my resources, time, and energy. Being purposeful with our resources is powerful and freeing, and for me, that outweighed the need for a new car. Don’t get me wrong, I’ll be purchasing cars again in the future; I just won’t do it as often as I used to, nor will I spend as much when I do buy. This frees me to continue to focus my life energy on the things I really want.

Many of you reading this have children who will one day inherit a meaningful amount of money. Are your kids prepared to handle your resources in a meaningful way? If you have doubts, it’s time to consider a strategy to help change that. A great starting place is for you to read Your Money or Your Life.

There is something reassuring about having money in the bank, being impactful with others financially, and knowing that you and I can continue to master our money and accomplish what is truly important to each of us. With a good strategy in place for the future of your finances, you can help ensure that your family will enjoy that reassurance for years to come.

With the start of 2021 finally upon us, if you are looking for an impactful book, starting new financial habits, or seeking to master your money on another level, drop me a line.
Happy 2021!

Also, sign up for our eNewsletter blog that includes timely financial matters, news, and planning strategies that you can implement today.

Ask yourself- can my portfolio support my lifestyle in my retirement? 

12 + 1 =

2020 Presidential Election and Your Money

ST. CROIX INSIGHTS

2020 Presidential Election and Your Money

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

2020 presidential election
As we all know, our next Presidential Election occurs on November 3, 2020. I don’t know about you, but I’m ready for November 4, 2020!
It seems that with the power of the internet, we are all in a cycle of constant news, content, and connectivity. But even in today’s world, it’s still possible to find yourself without cell phone coverage, cable TV, or even the internet. I found myself in a place just like that for five days over the summer, and it was heavenly.

As I write this, we have about 49 days until the next President of the United States is elected. Those of you reading this are Democrat, Republican, Independent, Conservative, Liberal, and my list could go on. Yet one major commonality we all have is our money:

We’re all concerned with things like planning for our retirements, managing our investments and 401k plans, and funding our kids’ college.
We have two choices this next election. How will this outcome impact us, our money, and our investments? As of this writing, here’s what I’ve been able to decipher, along with my overall thoughts for the end of 2020 and the beginning of 2021. Keep in mind that I have no idea who is going to win (but I sure wish I did—it would make my job a lot easier!).
The markets have demonstrated it can perform well under both Democratic and Republican administrations.

No matter who wins the next Presidential Election, here are some of the common threads I see in the future we face:

  • Telemedicine was already growing and has now hit overdrive due to the coronavirus.
  • We strive for faster internet, and 5G will impact all of us.
  • Green/clean energy (e.g., electric cars) will continue to become more common, right down to autonomous driving.
  • Let’s not forget about the increase in automation.
  • Are you receiving more packages at home than ever these days? I don’t see that   changing.

If Vice President Biden wins, these are some potential market sectors to own:

  • Hydroelectric.
  • Solar and Wind.
  • Infrastructure companies that focus on roads, bridges, and airports (assuming people start flying again).

If President Trump wins, these are some potential market sectors to own:

  • Heavy equipment companies.
  • Heavily sales-driven internet companies.
  • Social media companies (Twitter loves him!).
  • Overall US-based manufacturing companies.

Under Vice President Biden’s tax plan (versus President Trump’s):

  • Capital gains tax would move to 39.6% on the wealthy.
  • Step-up in cost basis would be eliminated.
  • 1031 exchanges would be eliminated.
  • Corporate tax rate would increase to 28% (from 21%).

I’ve seen slightly different figures, but the Federal Reserve has printed over $3,500,000,000,000 in a matter of months. I don’t know what comes after a trillion—do you? I haven’t talked to anyone who hasn’t asked how this is going to get paid back.
Today, over 1,000 people a day are moving to Florida from the Northeast alone. I suspect income tax-free states will continue to see an increase in their populations thanks to newcomers from high-tax states.


This year, we’ve seen big stock market swings, though lately that’s settled down. You may be concerned about this presidential election. If you become worried about your investments or the markets or just need a sounding board, give me a shout.
Finally, here’s a reminder you’ve heard me stress: having some amount of cash on hand continues to be a solid strategy.

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Ask yourself- can my portfolio support my lifestyle in my retirement? 

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Broke Millionaires—It Happens

ST. CROIX INSIGHTS

Broke Millionaires—It Happens

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

I suspect you think I’ve gone off the rails this time. “Broke millionaires, really?” How can someone who makes a million dollars a year be broke? Maybe you’re thinking, “If I had a million dollars, I’d never be broke.” Well, I’m here to tell you this is a more common theme than you might think.

In my professional experience, it’s not the mortgage payments that cause the financial leakage in our checkbooks.

It’s the day-to-day spending. It’s the $10, $25, or $100 here and there throughout the month that causes the problem. This type of financial leakage seems so small and innocent, no big deal . . . yet this compounding leakage adds up to real money (and broke millionaires).

Many people believe that if they just made $5,000, $10,000, or $100,000 more a year, all would be well with their finances. The truth is, no matter what they make, most individuals live life right up to their full income if not beyond by using credit. And credit is so darn easy to obtain. Today, I’m even seeing zero percent auto loans for 80 months. That’s a long time to keep making payments (and no car company is offering a zero percent interest-free loan, by the way).

But—and this is a key life lesson—debt limits our future lifestyle.

We live in a society that says if you buy this, you’ll be happy. If you buy this, it will impress others. Money is not always mathematical; it’s emotional, and that complicates things for some of us.

I have two kids, one who will end up with more money than his parents and one whose paychecks are inevitably spent two weeks prior to payday. (Till this day, I have no idea how the heck I raised two kids with such opposite spending habits!) Talk about broke millionaires.

It’s not about what you make; it’s about what you keep. If you are ready to keep more, you’ll like our down-to-earth strategies to control your money. Let’s schedule a time to discuss how we help our clients reach their financial goals.

Also, sign up for our eNewsletter blog that includes timely financial matters, news, and planning strategies that you can implement today.

Ask yourself- can my portfolio support my lifestyle in my retirement? 

10 + 4 =

Federal Stimulus Check 2020

ST. CROIX INSIGHTS

2020 Federal Stimulus Cash

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

federal stimulus check

The federal stimulus check raises many questions. With markets whipping between rallies and retreats, it’s natural to ask:
First off, Is it time to buy?
Is it time to sell?
Are we near the bottom?
Or worse, Is the bear market finally over?

Despite the recent market surge, which propelled the Dow 21% higher in just 3 days (technically ending its bear market correction), it’s likely too soon to get overly optimistic.*

What gives? How can markets be rallying when the crisis hasn’t even peaked yet?

When markets have fallen so much and “priced in” so much bad news, it’s common to see short-term surges on good news like the relief bill. However, these “head-fake” rallies can be unsustainable when there’s so much uncertainty.
Bottom line: No one is good enough to call the exact bottom of a market. What’s important is looking through the bear market to the other side and picking up opportunities along the way. 
Whether the bear market is over or not, we’ve been here before and know what to do.

How worried should I be about a recession? 

Cautious, but not panicked. When a $21 trillion economy comes to a screeching halt, there’s going to be an economic contraction. Multiple timely indicators show that we are already experiencing a sharp downturn.**
However, the $2 trillion fiscal rescue act and the Federal Reserve’s new asset-buying program are a double-barreled bazooka aimed at the effects of a serious recession.
Furthermore, we’re monitoring the data rolling in and will know more about how the economy is reacting to the unprecedented aid in the coming weeks and months.

What’s inside the $2 trillion CARES Act? What’s in it for me?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act is designed to provide relief for individuals and businesses who have been hurt by the outbreak. I won’t try to include all 800+ pages in this post, but here are a few key provisions that you should know about:

Federal Stimulus Check: A One-time cash payment. Taxpayers are eligible for a one-time direct deposit of up to $1,200 per adult ($2,400 per couple) plus $500 per child under age 16. Amounts are reduced for those who make more than $75,000 ($150,000 if married). If you have filed your 2019 taxes already, the IRS will use that income to calculate your payment; if not, they’ll use your 2018 tax filing.

Better unemployment benefits. The Act will extend and expand unemployment insurance through Dec. 31. Eligible workers (now including self-employed, independent contractors, and gig economy workers) will receive an extra $600/week for four months, on top of what they receive from state unemployment benefits.

Early withdrawal penalty waiver. The Act waives the standard 10% early withdrawal penalty for eligible coronavirus-related distributions from retirement accounts (retroactive to Jan. 1). You’ll still pay income taxes on withdrawals, but you can spread them over a three-year period or use that time to roll the distribution back over.

2020 RMDs suspended. You won’t have to take a Required Minimum Distribution from your IRA or 401(k) this year, leaving you in control of how much you withdraw. If you already took
your RMD for 2020, you have several choices: keep it and pay taxes on it, return it to your IRA as an indirect rollover, or convert the amount into a Roth IRA (Roth conversions are permanent).
 

Financial advice is a public service in these times, and I’m here to help. If you have questions about how the slew of recent changes could affect you, please call the office at (651) 337-1919 and we’ll find a time to talk.

Also, sign up for our eNewsletter blog that includes timely financial matters, news, and planning strategies that you can implement today.

Ask yourself- can my portfolio support my lifestyle in my retirement? 

7 + 3 =

Coronavirus & Your Money

ST. CROIX INSIGHTS

Coronavirus & Your Money

BY BRETT ANDERSON/ST.CROIX ADVISORS, LLC

First off, there have been weeks of headlines about the coronavirus outbreak. In addition, markets have been caught in a volatile pattern of surges and retreats. Here’s what you should know:

Why are markets so volatile?

Obviously, disease outbreaks are hard to predict and come with a great deal of uncertainty that can make investors nervous. In addition, this is particularly true after a period of record market gains.

Furthermore, as the epidemic spreads beyond China, investors worry that it could cause serious disruptions to trade. Then, it would impact the interconnected global economy.

How long will the volatility last?

Well, it’s hard to say. Though the human cost of an outbreak like Coronavirus is tragic, it’s unclear how widespread the economic fallout will actually be. For instance, we can’t predict what markets will do. However, this isn’t the first time we’ve grappled with market reactions to an epidemic.

Here are some examples from previous outbreaks:

Chart source: CNBC, Yahoo Finance

Unfortunately, the past can’t always predict the future.  Although we were not prepared for a virus of this caliber, we can refer to historic data. First, markets reacted to epidemics with panic selling. But they recovered after the initial outbreak. This coronavirus should be no different.

However, epidemics don’t happen in isolation. Above all, underlying economic and market fundamentals will influence how investors react long-term.

Then, pullbacks and periods of volatility happen regularly, for many reasons.

Whether the cause is an epidemic, geopolitical crisis, natural disaster, or financial issue, markets often react negatively to bad news and then recover.

Sometimes, the push-and-pull can go on for weeks and months. This can be stressful, even when it’s a normal part of the market cycle.

Lastly, the best thing you can do is stick to your strategies and avoid emotional decision-making.

Why?

Emotional reactions don’t lead to smart investing decisions. In other words, the biggest mistake investors can make right now is to overreact instead of sticking to their strategies.

P.S. Reading too many headlines? Having trouble keeping calm?

Just give me a call at (651) 337-1919 and I’ll be happy to help.


Chart Source:

S&P 500 performance during outbreak:

S&P 500 performance six months after outbreak: Yahoo Finance. 6-month performance between open of first trading day of the month after end of outbreak to adjusted close of final trading day of the sixth month.

SARS: April 1, 2003 – Sept 30, 2003
MERS: Dec 3, 2012 – May 31, 2013
Ebola: March 3, 2014 – Aug 29, 2014
Zika: March 1, 2016 – Aug 31, 2016

Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information. No warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. The Standard & Poor’s 500 (S&P 500®) is an unmanaged group of securities considered to be representative of the stock market in general. Indexes are not available for direct investment. The performance of the index excludes any taxes, fees and expenses.

Federal Stimulus Check Article

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Ask yourself- can my portfolio support my lifestyle in my retirement? 

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