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All right. I see we have a good attendance list so we will get started. So, as I mentioned today we are continuing our town hall series that we began last year. We started the series as a way to try to stay connected during the pandemic and provide information to all of you. And we hope you continue to find them helpful. My name is Jennifer Faherty. I am the Chief Client Experience Officer here at Modera Wealth Management. And we’re looking forward to engage in conversation today with our panelists who include Modera’s Chief Investment Officer George Padula from our Massachusetts office, Karen Keatley, who is a principal and wealth manager in Charlotte, and is also a member of our investment committee. And, Chief Visionary Officer Charles Boinske, who is logging in from Pennsylvania. I happen to be located in New Jersey. So one thing we want to acknowledge right off the bat is how fortunate we are to have the power of technology to bring us all together.

And also how grateful we are for our large and growing community. So today’s topic is investments. And like our previous webinars, we will be using a question and answer type of format spending much of our discussion, responding to questions that were already submitted. However, if you do have a question during your presentation that you’d like our panelists to answer, please use the Q and a feature at the bottom of your screen, and we’ll make sure to address your question. And finally, uh, we, will we be recording the presentation and making that available to you? Um, so let’s begin. And, um, before we delve into the credit market and economic conditions, let’s just rewind a bit, uh, to where we were a year ago from this month. So for first question, Karen, if you could answer this, can you take us back to March or April of 2020? And what are some of the lessons learned since then or perspectives you can offer us?

Yes. Thanks Jennifer. I don’t think any of us really want to go back to March of 2020, do we, but, but we can reminisce for a minute. Um, there was a pretty dark time we were facing down a pandemic. There were thousands of people across the planet were dying and the economic outlook was pretty grim. Uh, I don’t think any of us would have predicted the way, uh, the financial markets turned out for investors after, after such a beginning to the year, but the year actually turned out pretty well for people who stayed invested, uh, not so much though, for people who, who went to cash and became frightened and went to cash during the spring, sadly, those folks will have done lasting damage to their financial health. I’m afraid. Um, it was very hard to stay invested when we were looking at a global pandemic and the negative economic predictions, and we, we didn’t know where it was going or how long it was going last.

Um, but the, but the right answer or the, the recommendation that you all heard from your Modera advisor, um, and the investor in the, the, uh, the recommendation you will always hear from a Dara is to stay invested, even when we’re going through periods of time. That seemed really bad to be a successful investor. I think does require three personality characteristics that I’m going to talk about. One is having a long-term perspective. And I know you all hear your Modera advisors talk about thinking in the long-term all the time. It’s absolutely essential. Second though. I think it’s helpful to have a little bit of emotional detachment when you’re, when you’re facing a situation, like an environment that we were facing last year, you need to remain detached from it and thoroughly maintain a general sense of optimism that we humans can and will adapt. We can figure out how to be successful despite the challenges that we’re facing at any given point in time, just look at what we’ve accomplished this year.

We’ve developed a vaccine in record time, which will save millions of lives. We even landed a Rover on planet Mars this winter. Um, so lots of reasons to be optimistic yet. I think it’s harder than ever to be that way. We are confronted 24 seven with a new cycle that is mostly delivered by media. That’s very partisan. Our news coverage is very sensationalistic. It’s often infused with commentary, a lot of opinion, and it’s designed to push our emotional buttons, frankly, the goal of most television and internet news is not to inform, but it tries to generate an emotional response. So you’ll keep watching, uh, this represents a fundamental challenge to each of us as investors. If we allow ourselves to be overwhelmed by the pessimistic droning, it’s bad for emotional health, but it’s also bad for our financial health as well. 2020 is case in point, if you, if you allow yourself to become overwhelmed by the, the sadness and the, and the dark times we were in, uh, it could’ve caused, it caused many people to, to make investment decisions that were damaging to them.

So I’m always reminding people that you have to stay optimistic, even, even when things look pretty dark. And of course you rather, from my comments that I am an optimist, I even have a painting on the wall behind me of a bowl. And this is a symbol of volition. It’s not a symbol. It does not refer that I’m full of BS, but it is a school that I’m a bullish, I’m an optimistic person. And I think we all should be. I think that we have to be in order to be successful investors that doesn’t to say that there are, that there aren’t risks, because there certainly are risks is successful. Investor is always taking measured risks and always aware of risk. Our job at Modera is to help our clients understand risk, how to manage it, how it might or might not impact their lives in essence. That’s why we’re here today.

Great. Thank you. George has to add there,

Just go ahead, chest. Yep. No, after you, I think Karen, you hit the nail on the head, you know, the, the whole idea of optimism. Again, we go back to where we were a year ago, you know, some, the whole idea of not knowing, feeling out of control, but really when you go back to it, what, uh, what can you control? What can you focus on? And that really is you focus on what you can control and you focus on in investing you focus on how you can control diversification, asset allocation, uh, focus on the teamwork. And I think about the colleagues that we had in the clients that we have, you know, just, you know, really understanding, you know, what that long-term perspective is recognizing that yes, there are some short-term issues, some serious issues, health wise, economic wise, but knowing that, you know, every step you take is a step towards progress going forward.

So that, that to me is, you know, I look back a year ago and I think back in other crises, 2008, 2001, you know, 92 98, all the way going back. And, you know, every time you end up having a plan, having a strategy and moving forward out of it, I think that’s well said George and Karen. Um, the only thing I would add, and this is just a little bit of even longer-term perspective in, in my career, uh, which started in 96 months since the beginning of my career in 84, this was by far the worst, um, emotional sort of roller coaster, um, that I personally ever experienced. So it was particularly difficult for investors because the combined stress of a sh very sharp, very, um, severe bear market, um, was that was combined with the fear of your health and the global pandemic. And those two forces, uh, made it very, very, um, unnerving for most people. It was an unnerving experience. So I, I think it draws back to, um, the importance of having, uh, a long-term investment philosophy that you can stick with through difficult times, and even, even in times, like we experienced last year, um, you know, it’s, it’s extremely difficult to, to be disciplined if you don’t have that kind of grounded long-term investment philosophy.

Great. Thank you. Those were great perspectives. And, and I love when you used the term optimism, because optimism doesn’t mean you stick your hand, head in the sand, you know, and just be Pollyanna issues, having a strategy, as you mentioned in the discipline, everything. Um, but we do have questions around whether we’re maybe are we being too optimistic about the markets, are the markets too overheated? So can, can one of you address that question around where we are right now with the markets?

Yeah, sure. It’s Jennifer, I’ll, I’ll start out, uh, you know, clearly as we’ve come off the market lows of last year, you know, risk-based assets have gained substantially. I think, you know, small caps, uh, you know, uh, tremendously large caps are up tremendously. You know, even

Some of the, you know, the corporate bond and fixed income, uh, are up tremendously. You know, we’ve had some substantial fed monetary stimulus, incredible, uh, you know, fiscal stimulus from the administrations just today, a $1.9 trillion additional, uh, fiscal stimulus got passed by the house. So, you know, we’re having an incredible amount of support that when you look at things from a fundamental basis, it is supportive of this economy and the D and the, uh, and this, and by extension improving the stock markets. But yet, you know, you think about what Karen was saying before being an optimist and having that kind of longterm approach, just think of the innovations and the technologies and the innovate and the ingenuity that we’ve had over the last year. And I think it’s, you know, all that is going to be pervasive going forward. And rather than saying, you know, is one sector or one market or one index overvalued or undervalued, I think you really have to look at it from the portfolio perspective, right?

It’s, you know, if we’ve learned anything you have to have last year, not everything is going to go up or down at the same rate at the same time. And, uh, you know, that diversification means, you know, you’re going to be wrong, quite frankly, you’re going to be wrong. Some of the time diversification means you’re going to be, you know, you’re never going to be a hundred percent, right. You’re never going to be a hundred percent wrong. You know, you’re going to be, you’re going to be in the game and taking that long-term approach, uh, you know, jazz is a fly fisherman and he said, and I’ll let him speak for himself. But I think, you know, the idea of him is saying, you know, if you might not catch a fish every time, but you’re not going to catch any fish, if you don’t have your hook in the water. So all jazz and Karen know other analogies, I’ve stolen your analogy check. So, sorry.

That’s quite all right. I think, I think it’s a good one though. Um, you have to, you have to be present to capture the returns available from the capital markets and, and, uh, those of us that spend too much time thinking about short term, um, uh, risks that, that we want to try to avoid, whether it be in a, in a, in a market slice or a particular investment may lose sight of the overall purpose of the portfolio, which is to capture the return available from the capital markets. And when someone asks me, you know, is the market over valued? I usually respond with which market, um, there are so many parts of the marketplace that are, that are incorporated, incorporated into a diversified portfolio that get that I think investors are well-served as they look at the big picture, as you just indicated, rather than one particular slice of the portfolio at any given time.

I think that’s a good point. I’m also going to add that, you know, I, I’ve had a lot of questions this year over the last couple of months about whether I think the stock market is overvalued. Um, everybody, everybody just wants an opinion. No, I think that’s fair. What I say to that. And I guess the other piece of that question is, you know, if the economy’s been so terrible and it’s pretty terrible through the year, um, why has the stock market done so well? Why were stock returns so good through the second half of 2020 and now coming into 2021? Well, I think it’s important to keep in mind that the stock market and the economy are two different things. Um, most of the NAMI, the economic pain from this pandemic has been in small businesses. It’s been in restaurants or clothing retailers, uh, the hospitality industry and, um, travel industry, which employs a lot of people.

A lot of people, a lot of jobs are lost in those industries, and there’s a lot of small business pain yet. These things don’t have any impact on the stock or much impact on the stock market. They don’t represent in the case of solid businesses. They’re not even stocks, they’re private businesses in the case of the travel and hospitality industry. It’s just not a big part of the stock market. When you think that when you look at the composition of the stock market, uh, you know, 30% of it about is, uh, technology stocks yet, they’re only about that’s that industry, the technology industry is only about 6% of the economy and just 2% of workers. So there’s a big disconnect between, um, what’s happening in the economy and what’s happening in the stock market. The other thing I’ll say about valuations is this, uh, valuations today are pricing in a strong economic recovery.

Um, it’s very possible that valuations could have gotten a little ahead of themselves. Stock seems a little X stops, stocks seem a little expensive. Um, if the economic recovery disappoints, there are sort of two, I think two general possible outcomes. One is that stocks might tread water for a while until earnings catch up, or we could see a big pullback. And I think either outcome is really okay for us when we’re long-term investors, remember market pullbacks happen, market pullbacks of 10 to 15% happen every year on average and big market pullbacks of 25% or more happen every five to seven years, these events are just speed bumps for us as long-term investors. They’re not, they’re not cataclysmic. The trick is to not let these things not let these pull backs, um, and the associated negative news coverage that happens. You don’t want to let that derail your strategy.

Thank you. And, and, and really as a related question, um, that gives us a lot of perspective, but if you’re an investor who has a lot of cash, um, and you do see, you know, some of these stock prices and, uh, you know, um, the market just feels like it’s, it’s again, overvalued, you know, what would you say to that person who may still seem to be nervous and not sure whether it should, it’s kind of the time to invest.

I mean, look, it’s, it’s time, not timing, right? And that’s, you can’t time the market. If you try to time the market, when’s the right time to get in. You’re going to miss

Opportunities if you are, if you have some cash and you’re waiting for the right time, think about actually having a right strategy. So maybe it’s dollar cost averaging. You put some money in today, you put some money in a couple of weeks, a year, a couple months, but you have a process. You take that emotional detachment out. It’s some of it’s behavioral, but it also is having that strategy, understanding what your goals are and thinking about the big picture, uh, you know, Karen talked about the D you know, the difference between the economy and the, and the stock market, you know, just a year ago or so, you know, we were talking about earnings going down, tremendously dividends being cut, and yes, for awhile earnings and dividends did go down economic growth, uh, was, was one of the worst and in, uh, in decades, but we’ve had such a rebound out of it. And again, the ingenuity, the innovation just think about kind of the, the digital experience, moving forward, being able to order things on your phone and pick it up at the store, groceries, uh, you know, clothing, you name it. It’s just going to be pervasive going forward. So to get back to, you know, what do you do if you have cash on the sidelines, set the plan, execute on the plan and move forward.

Great. Thank you. Um, we’ve also had questions from clients come in about specifically the performance on small Val and value stocks. So if you could, um, talk about those asset classes classes, and if there are any new perspectives there with regard to our portfolios,

Great, I’d be happy to, I’d be happy to go first on that. Um, you know, it’s only natural that the performance of smaller value stocks over the last three years has caused many investors to question whether or not they should have them in their portfolios at all. You know, the small stocks have underperformed, large stocks and value stocks have underperformed growth stocks fairly significantly, but I think it’s important. And we at Modera think it’s important not to lose sight of a really important, important, basic principle at work in all investments. And that is if you have an investment that trades at a low relative price compared to its future cash flows, that investment by definition has a higher expected return than the market as a whole pure and simple. So that characteristic basically describes small and value stocks, smaller value stocks, generally traded prices at, uh, that are low relative to their future cash flows.

What this means is there’s a, and w well supporting, this is a tremendous amount of evidence that’s that supports the general idea. In fact, capitalism itself wouldn’t function. As we know it, if this principle was not true, quite simply risk and reward would be unrelated. And so it’s our view at Modera that what we’ve experienced over the past several years is the exception and not the in investing the, the under-performance of value and size is likely to be more of an anomaly than the outperformance of growth and value or growth in large stocks is sort of some super, um, super positive investment experience in the long run. Um, recently, for example, um, to the surprise of many investors, small and value stocks have been outperforming the broad stock markets, just when you thought small and value stocks were dead, they were never going to come back over the last six months.

Small value stocks have outperformed large growth stocks by more than 40 percentage points for zero. That is a huge out-performance in a very short period of time. And I think it emphasizes the point that we expect, um, value in small stocks to outperform every day because of their low price relative to their future cash flows, but it just doesn’t happen that way. And so to capture those returns over the longterm and the evidence, as I said earlier is very clear long-term investors have benefited handsomely by having portfolios that included small and value stocks. We don’t think that’s going to change into the fee in the future. Um, but it, it emphasizes the fact that you can’t predict when exactly that’s going to happen. So having dedicated exposure to those types of securities in your portfolio at all times is the best way to capture that longterm benefit of size and value in your portfolio. So we strongly recommend maintaining that dedication or a dedicated allocation to smaller value stocks in portfolios.

Yeah, I think the only thing I would say is that, um, what’s been interesting. We’ve had this multi-year period of time where large risk stocks have, have been on a big tear, you know, the small and value stocks haven’t been terrible. They’ve just not been as outstanding. You know, the tech, the tech companies have been on a big rocket ride, um, for a couple of years.

And we’ve seen that before. Haven’t we, Karen, back in the tech bubble, um, almost 20 years or 20 years or so ago that happened. And those investors that had the fortitude to stick with small and value through that were well rewarded when the fortunes reversed. And I would add one other thing in terms of growth. When you think about growth in a market, it is there’s two elements, here’s your capital growth stock price going from one to two, but it’s also your dividend yield plus capital growth. And so value stocks tend to have higher dividends. You can also have dividend growth. So the dollar today is not going to be a dollar in the future.

That dividend is going to continue to grow. So even if you are flat in the capital, you can still receive return via dividend and increase your Yuan costs over the years. So I think there’s a lot of elements to that. It’s not binary growth in value. It’s not binary us and international all have to work together.

Thank you. And now pivoting a little bit, um, another concern that, um, some people have is on interest rates. So can you talk a little bit about what’s happening there and, you know, if there are any kind of strategies that we might want to take a look at? Okay.

Um, well maybe I’ll start this one. Um, I know I’ve been hearing a lot of concern about interest rates. We’ve seen some, uh, prognosticators in the press, uh, claiming that we’re in an asset bubble created by the federal reserve because rates are so low and as interest rates rise, it’s going to kill the stock market. And I think this is an over-simplification rising interest rates are kind of a good news, bad news, kind of a story. Um, I’m going to back up for a second and explain why people think that low rates are driving stock valuations upward. Um, finance types use often use a mathematical model. The value stocks called the dividend discount model, and that model low lower interest rate raises the implied value of stocks. So if you have an expectation that rates will rise, it’s going to lower your expectation of, of stocks valuations.

But the counter argument to that is that rising interest rates reflect expectation, normally expect expectations for a strong economic recovery. And that’s a good thing. A strong recovery would lead to improved corporate earnings, which could more than offset the impact of the rising interest rates. So hard to say, um, regarding asset bubbles. I, again, I don’t think there’s a direct relationship between interest rates and asset bubbles. There’s a couple of recent asset bubbles that I can think of, which is the tech stock bubble of early two thousands. That’s been mentioned here and the real estate bubble of 2007 in both of these instances, interest rates were quite a bit higher than they are today. Um, the other thing I want to add is that when we look at historical data, there really isn’t a relationship between stock returns and interest rate changes. Um, the stocks can go up when renters rates go up or they can go down when interest rates go down. If so, really, even if you and I could accurately predict interest rate directions, which we really can’t do, it isn’t necessarily a foregone conclusion that stock prices will react in one way or another.

Yeah, I think interest rates are at a historical low right now. So the kind of the benchmark that people think about grants restraints would be the 10 year treasury. So ten-year rate right

Now is about 1.6%. Uh, we were at a historical 0.6% last summer, you know, looking back at some, at some numbers that I, that I pulled three years ago, the 10 year rate was at about 2.9%. So we’re still historically low. So if interest rates do go up, you know, we’re still so well below where we were, but, and there’s a, there’s a little bit of, uh, of a fear as the fiscal stimulus kind of gets kicking in that you’ll have more inflation cash in the sidelines is going to be put to work. People are getting back to work. People are vacationing, the fed will have to be forced to raise interest rates. And the credit markets tend to go ahead of equity markets. Uh, and then you’ll see inflation, spike and insurance spikes. Uh, but you know, a couple of things, one, the fed has really tried to tamp down those, those fears.

Uh, they have been buying bonds in the markets and they provided the liquidity last year tremendously. And they had to, um, if they didn’t, we would, we’d be in a world of hurt. And, you know, right now, when we think about fixed income, you know, we don’t buy just treasuries. We buy corporate bonds, high quality, corporate bonds. We buy municipal bonds, tax-free income, you get income from dividends. You get income from, from, uh, from real estate, uh, foreign bonds, uh, as well. So the whole, and we tend to keep our duration or our interest rate risk a little bit lower than the market risk. Uh, just simply because we don’t want to take that interest rate risk. So, you know, there is a fear of interest rates rising, but we’re so low, little bit of rise in interest rates will actually probably be healthy for the markets.

Uh, and, and it’s, it’s very, very hard to predict, but again, as Karen mentioned, we’ve been through rising interest rate environments in the pants we’ve been through falling into your shirt environments and past these cycles happen and we’ll, we’ll get through it. So yeah, the only thing I would add to that, I think is both of you, you know, it’s very well said that the best defense against that, the unpredictability of interest rates is diversification. Just like it is the best defense against most of the risks in the portfolio. Um, and so diversification is your buddy, uh, make sure that the portfolio is really well diversified taking sensible risks, uh, like we described earlier size and value and you rebalance and, and go forward. Um, that’s, that’s all, that’s all the thoughtful long-term investor could do, or it’s the best strategy. Yeah.

Thank you. And I think you addressed all of you to address this in different ways, but I did want to mention that we did get two questions here related to this topic. Is, is there currently more danger in bonds than an equities in terms of overvaluation? And then, um, another question around, you know, if you get certain interest rates with bonds and also, you know, if you get like 3% bond at par, what’s the support quality, whereas 5% used to be the norm. How can people live on a fixed income survive when income is going down and stuck? It is, and a stock dividend plan is great to goose income at what point, uh, I can’t, I can’t quite understand this, but it was really around kind of bought in fixed income. And, and how, how do you really gauge that and, and be able to kind of survive on, uh, if you’re, if, if that’s where a lot of your investments are.

I think, you know, part of the, you know, is there a danger in bond markets? Well, but bonds tend to be, uh, less volatile, less risky just in general. When you think about kind of the totality of risk, bonds tend to be less risky than stocks. Uh, there are higher up on the, uh, on the security scale and there are 10, and there is a guarantee of par coming back to you. So in totality, there’s a little less risk. If you’re shorter term and you bonds as interest rates go up, you should be able to roll those bonds. And the managers will use roll those bonds into, uh, into higher earning, uh, bonds. And it’s also, when you think about the diversification within fixed income, it’s just not what you are and keep. So if you’re an attack in taxable accounts, municipal bond income, very good strategy for taxable accounts, high yield, or corporate bonds, uh, in, in, uh, in, in, uh, non taxable accounts, but also think of it from a total return perspective, too, right? So it’s not just living off the dividends or clipping coupons. It’s, what’s the total return, as we talked about capital growth, plus income equals total return. And that’s what you really want to be thinking about kind of going forward. So Karen and Chas,

I think Georgette’s well said the, uh, the biggest danger or one of the biggest mistakes I’ve seen investors make over the, over the years is facing a particular income stream rather than looking at the total return of the portfolio as you just described. And if you focus too much on just the income coming from a portfolio, you may be uptaking unintentional risks. You may be exposing your portfolio to risks that, that you didn’t bargain for. So I would just counsel, and I think we’d be in harmony on this, uh, the three of us that you need to look at what it is that you’re trying to accomplish with your portfolio and make sure that you’re building a portfolio that takes just enough risk to get you there, um, to, to achieve the goals that you’re, that you’re trying to achieve without, um, you know, exposing your portfolio to risks that you weren’t prepared to take. But it’s a good question. The other thing I would add, cause I think I heard in the question, the concern

About a person living on a fixed income, but it sounds like maybe this person asking the question is retired and, um, and thinking, uh, uh, just about having income that lasts the retirement. Um, and I want to explain when we talk about total return, we’re talking about not only income, but the change in value of the portfolio over time. And there’s one asset class that generally tends to grow over time and that stocks, you know, bonds, uh, don’t generally grow over long periods of time. So there, even for a retired investor, I truly believe that there needs to be a big part of a significant part of their portfolio needs to be invested in stocks. And you just have to put up with the volatility and the pandemic, you know, drops and all the other stuff that comes along with being a stock investor, because you’re rewarded with long-term good returns and that’s what even retired people need that in their portfolios.

Yeah. And that segue actually really well to our next question, which is on inflation. So that’s another concern. So if, if you all can address that, that would be great. Yeah, sure. I mean, inflation, you know, finishing up just a little bit on the interest rate, if you think about low interest rates, it also means that for those, those of us who have mortgages mortgages, aren’t six, eight, nine, 10% mortgages are below three and four. And so low interest rates can be very helpful in that regard too. But in terms of inflation, you know, it’s a really interesting question in terms of where we are with inflation. If you think about the long term 90 plus years of input of, of, of kind of investing in, you know, inflation is averaging, you know, roughly around 3%, we’ve been well under 2% for the last decade or more, the Fed’s target is stated.

Target is 2% with the last year and the fiscal stimulus, they’ve essentially said, we’re going to let that inflation target run up. Right. And because they want to get people back to work via, you know, the unemployment rate is still close to 7% of people are still unemployed. We’ve got to get the economy back up. So they’re, they’re willing to let inflation go up a little bit, uh, higher than that. Um, but in, in, in real terms, if you think about inflation, it’s just not this kind of a morphous 3% inflation number inflation takes a lot of, you know, a lot of different forms. Is it healthcare costs? Is it tuition costs? Is it the cost of technology which has been in a deflationary environment, you know, clothing, internet, you name it, transportation, you know, inflation can hit the pocketbook in many different ways. And whereas in some cases it’s going up in other ways it’s going down.

But you know, we’ve seen a pretty stable inflationary environment for a number of years. And Karen brought it up right at the beginning. The headlines are meant to elicit this emotional response, but we need to take the step back. And when you think about kind of long-term planning and you think about creating a portfolio and then testing that portfolio, the, you know, what are the different environments that we have where the, in the highs and the lows, and what’s your kind of band between that median return. And you can really get a sense that, you know, no matter the inflationary environment, you can have a portfolio diversified portfolio long-term portfolio that will take advantage of that. You know, some inflation is good for equities. Some inflation is good for certain types of bonds and real estate, the alternative being deflation. You certainly don’t want that. So yes, inflation big headlines where we are it’s it seems to be, you know, a little bit of what the fed is saying. Let’s not worry so much about the spike coming, coming up, coming forward. So

Yeah, I think, uh, George, uh, isn’t it true that the source of the inflation is the most, or one of the most important issues, whether it’s the inflation is being caused by increase in demand in the economy, or is it being caused by a supply shock of some sort like we saw with the oil crisis back in the seventies, you know, those two sources of inflation are very different. Like you said, having some inflation that’s due to the economy reaccelerating or accelerating from its lows is probably not a bad thing. Um, and, and it should probably be, you know, should probably be expected. Um, what I worry about more about inflation is some unexpected costs and that’s unexpected. Inflation is never priced into bonds. It’s not priced into stocks, expected inflation is. And, um, so I just think it’s important to make that distinction

On the topic of expected inflation. I’m going to go out on a limb and say that I expect to see, um, some spikes of inflation. And I, and I, I want to raise that now because I think the news media is going to make a big deal out of it. And I don’t want our investors to make a big deal. I mean, when you think about where we were a year ago with segments of our economy, shutting down, prices fell and things like clothing, travel, dining, all of these things, the prices plummeted. And now as the country gets vaccinated and the economy comes back online, what are the first things we want to go out? And we want to go out and do we want to go out to dinner? We want to go into bars. We want to go travel. We want to do all the things we haven’t been doing.

And there may be capacity constraints in these industries. Now, um, we may see prices rise, and we may see prices rise at suddenly when we compare them to numbers a year ago. So we might see these great big spikes in your rear inflation. It’s going to be great news, headlines stuff, but, um, I would just, uh, you know, cautious take that all with a grain of salt. Um, we’re going to see these, these spikes of inflation. It might be, uh, industry specific, but I think these are going to be short-term spikes. I think the federal reserve thinks that to inflation, isn’t really damaging unless it’s with us for long time and compounds

A year over year short-term spikes inflation that happened just because we’re recovering from a pandemic. That’s not, that’s not going to be a problem for us.

Great. That’s really good perspective. Um, on the short-term versus the long-term, um, I’m looking at the chat box or the really the Q and a box right now, we have a lot of questions related to taxes. And I know this is actually a question that we discussed even prior to this discussion around, uh, specifically, um, the new administration, Biden administration. Um, some people concerned about, you know, what that means, uh, with regard to taxes and possibly some other policy changes. So if you could chat a little light perspective on that next, that would be great.

Sure. I’ll, I’ll, I’ll jump into the fray of taxes. Uh, you know, so I mentioned earlier, we’ve got a $1.9 trillion stimulus package just got passed. Uh, plus what we had already a million amount of stimulus into the economy is, you know, far and away, greater than we saw in 2008, far and away, greater than we saw in 2001. And at some point those bills, they have to get paid. And you know, whether there’s a tax increase, uh, sooner or later, uh you’re in what formats or what amounts, uh, you know, those are questions that we can’t answer at the moment. There’s a lot of political wrangling going on and, you know, quite frankly, no one has asked our opinion on what should or shouldn’t happen or when it will happen or not. But, um, you know, let’s, let’s take a step back, right? And unemployment right now, the us is still roughly around 7%.

The economy is still it’s stabilizing, right? We’re still, we’re still building the bricks in this foundation of the economy going forward, but we’re not there yet. And it, it’s hard for me to believe that the first major policy initiative of this administration is going to be a tax package. It’s just, it is. So I I’m, I’m not sure that again, the headlines are going to be there for such a short term period of time, but, you know, let’s, you know, again, we’ve, we’ve seen taxes move up. We’ve seen taxes moved down. There are so many other, there’s so many ways to think about taxes. And again, go back to what you can do. What can you control versus what can’t you control? You can control what types of fixed income investments you have and where they are if you’re in a high tax state. And you think you’re in a high tax bracket, let’s think about municipal bond income, where you get tax-free income. Let’s think about how you, you know, higher corporate earnings and real estate in IRAs. For example, let’s think about total return, qualified dividends, reducing taxes via charitable gifting, qualified a D uh, charitable dividends or distributions from your IRAs, figure out what your state tax policy is. Uh, uh, and so there’s a lot of things kind of going into what will happen with taxes and isn’t taxing aren’t tax increases, uh, bad for me. It it’s, it’s not that easy. It’s a little new, a little more nuanced than that. So,

Well, I mean, none of us wants to pay more taxes, but I think you’re absolutely correct that the, the stimulus that’s happening, the bill will come due at some point. I think if these questions are, are related to whether we think taxes or tax proposals that are coming out of the administration might kill the economy or global stock market, the, the best response I can think to that is, is that, is this president Biden has been fairly transparent about what he would do want to do, uh, with his tax proposals. Um, the market knows that I think it’s, I think it’s baked in, I don’t see, uh, tax proposals coming out that, that change, that materially impact the, you know, the financial or performance of our investment portfolios coming, coming forward. Um, I do think that people put a lot of stake on this. You know, people are very focused on politics.

We’re we live in a really divided society. I’m gonna, I’m going to violate the laws of polite conversation for just a minute and talk about politics, because I know, um, we had this very divisive, presidential elections, and probably half of you on this call. We’re happy with the outcome in November. And probably half of you were not happy with the outcome, and it’s the same people. We can flip that around as far as four years ago, right? Uh, half the half, the people are unhappy and think that the policies of the incoming administration are gonna be bad for the economy. And the truth is I at both political parties come with good ideas and other ideas that aren’t so good. Aren’t so good economically. And it’s usually a mixed bag. Um, research shows that our, uh, our outlook as investors is really impacted by our political leanings and whether the power, the power, uh, in the white house best with our party or best with the other party.

Um, studies have shown that people’s, uh, consumer confidence, their overall optimism is a function of, of whether their party’s in power. So they really, they really changed their perceptions. So as I sit here and tell you to remain optimistic and long-term focused, I know that’s hard for maybe half of people listening to this call. Um, I also want to point out that, um, there’s been research done fairly recently about professional investment professionals. They, the study by some academics looked at, um, investment securities analysts, um, and how their political affiliations affected their, their work. They looked at a group of analysts who were responsible for assigning credit ratings to bonds. Now, these people, their job entails looking at the financial statements of the bond issuers and assessing economic conditions and coming out with ratings that correspond to the risk level of the bond. And what the study found was that if a professional, these, these, these people are trained to be professional.

They’re trained to be objective, but the research showed pretty conclusively that if their party was not in control, they were more pessimistic and tended to downgrade, uh, the bonds that they were responsible for. So I think if, if we, if we look at me and say the professionals are doing this, I think we have to know that, you know, we’re all human and it’s our, you know, we all have to accept the fact that our perception of reality is going to be somewhat tainted by our political views. Um, and, and I’m just encourage everybody just to take a step back from that. There are, there are sort of three things about politics that I will say. Um, and what we know there has been no discernible relationship between which PA powers and which party is in power. There’s no relationship between which party is in power and what’s going to happen to the economy.

And the financial markets economies are way more complicated than that. The management, the second thing I will say is that the management teams of every business in the country, if not the world, go to work every day with the goal of figuring out how to be figuring out how to be successful. And they’re going to figure out how to be successful, given whatever economic or political environment they find themselves in, they will adapt and they will succeed. And this is the beauty of capitalism. And then the third thing I want to say is there’s a midterm election in 20 months, and we get to all vote again. So we get to replace our leaders if we don’t like them. And that’s the beauty of our political system.

I think Karen, the important point you made, um, the most important point you made, cause it’s all good. Was that, or is that these debates about policy are done in the open air? The are the, these are we’re, we’re all learning about them in the newspaper, on the news shows, et cetera, the capital markets have ample time to, to react and to anticipate what these changes are going to be. If it was likely to be a very negative outcome in terms of this, this, you know, impact on the economy, et cetera, I don’t think you would see the stock market doing what it’s doing, um, you know, recently. So, so it’s just important to remember that markets are at work all the time. It’s not just the day that thing is passed or the day that the tax law is, is, uh, is, is made or taxes or the tax changes are made law. It’s, it’s, it’s a process and to reflect it continuously, that’s the beauty of our markets.

Um, and we did have a question of specifically though on taxes. And I think George did answer this, but just to make sure we address it, given what we do know about tax and likely tax changes, is there anything specifically that new retirees should be, do do should be doing differently moving forward

New retirees, what they should be doing moving forward? I think it’s going back to what you can control your planning and your process and looking at

The different scenarios. I think, yeah. I think respect to tax planning, talk to your advisor, because there are things that we can do, uh, for people who are newly retired, particularly if they’re in those years that they’re retired yet, they’re not yet receiving a social security income and they maybe they haven’t reached the age where they have to take required minimum distributions. So when we have those, uh, retirees and those, I call them the, the, the low taxable income years, there are things we can do, strategies you can put in place that can, that can be really, really effective. So, uh, and I think it’s more detailed than we probably would want to go into on this call, but I would encourage you to speak to your advisor about that. Absolutely.

Great. All right, moving on. Um, let’s pivot again, to now a different topic, which is ESG investing. We’ve been getting a lot of questions around this. So if Chas, you could tell us a little bit, just some background, first of all, in case people on the call aren’t as familiar with ESG. Um, so if you could just give us some background on it and also what we might expect in terms of what we’re doing in.

Absolutely. Thank you. Uh, so ESG is, is, uh, an acronym for environmental, social and governance and, and what it stands for. And when you look at each one of those areas, um, it’s, it’s sort of a natural evolution of what you’ve heard probably in the past socially conscious investing, et cetera, environmental, um, stands for things like our companies for, uh, producing waste and pollution. Are they, are they contributing to deforestation or resource depletion? Social has to do with employee diversity, working conditions, child labor, health, and safety, et cetera, and governance has to do with things like board diversity, executive compensation, which you hear a lot about and things as, as, uh, as terrible as corruption and bribery. Um, but what what’s really interesting about this, I think it’s, it’s, um, uh, in so many ways, sort of a natural evolution of capitalism, as we think about socially conscious investing.

Um, traditionally, as you know, when we evaluated companies, um, we, we looked at their balance sheets and income statements and tried to forecast their future earnings and cash flows, and then discounted them back to the present to come up with a value of a company. So that value was the estimate that we would make to say, this company is undervalued or overvalued. Well, there was never any real way to calculate what the exposure to things like waste and pollution were, or deforestation or resource depletion on a balance sheet or an income statement. You, you learned about it after there was an oil spill or after there was a, uh, another tragic disaster. And so what what’s happened in the last 15 years or so is that the data is being gathered on these issues. The, the, the, the computing power governments have started requiring companies to produce, uh, reports on their carbon footprint.

For example, that allows then the capital markets to price in those risks directly into the securities. It’s, it’s, it’s, it’s the free market at work. It’s capitalism doing its job. It’s taking this data and allowing us as investors to see, and to calculate the impact of, of those factors on the risk and the need in the specific investment. And so, while in the past, we’ve been relegated to eliminating things out of a portfolio because they represented a particular type of risk that, or a particular, um, issue that, that we didn’t want to have in our portfolio, let’s say tobacco or alcohol or deforestation or whatever the case may be now, because we have this data, we can actually not only do that, but we can emphasize the companies that are doing the opposite. They’re doing the things we really want to see companies do. Uh, we can reward good behaviors, another way of putting it.

And so, um, you know, this is an enormous, um, improvement, uh, from a portfolio construction standpoint. And it really is an homage to a really famous economist called Adam Smith. He was a Scottish economist who came up, who wrote a book called the wealth of nations. And he had a concept in that book called the invisible hand. And the idea is that the invisible hand of capitalism moves money around to where it’s best treated. And it, and so it’s the invisible hand of capitalism that is starting to price securities with consideration of the risks that I mentioned before. This is, this is a really interesting development in the field of finance. Um, and I think is, uh, is, uh, is, uh, is a very, very positive, um, outcome. And so as this data is better codified and standardized ESG investing becomes more efficient and effective. You can more easily take, take, or take those issues into consideration as you build portfolios.

As a matter of fact, today, seven of the look of the 10 largest pension plans in the world use ESG investing, screening, et cetera, in one form or fashion in their portfolio construction. So now at Modera, we recognize that the capital markets evolve and that there are new tools that have become available. And, and so we’ve developed ESG portfolios for our clients. These portfolios will allow us to tilt the portfolio towards those companies that are viewed as good actors in the categories that I just, uh, um, mentioned, or avoid companies that are bad actors. And towards the end of this quarter,

We’re going to introduce these portfolios and these portfolio structures to clients. So if you have an interest in that, um, and if it’s personally important to you, I’m a fly fisherman. The environment’s really important to me. Um, so this is a really positive development from my perspective. Um, please talk to the folks at Modera that are responsible for helping you, um, we’re excited to talk to you about, there’ll be more information forthcoming.

Yeah. And before others, um, maybe comment on that. We have a quick poll here, so I’m gonna launch it, just asking about ESG and how interested are you in adding ESG investing to your portfolio portfolio? So if you can take a minute to, um, respond if you’d like, and while we’re waiting for those results, um, I don’t know if Karen or George want to add to that.

Yeah. So, you know, one of the things with ESG is that there’s been a real, real strong improvement in the types of funds and in the types of investments. So typically, you know, it’s Jasmine saying ESG used to be more about excluding companies. Now it’s including companies that have positive characteristics, uh, socially responsible funds used to be, uh, expensive. Um, you know, they, the, the correlations, uh, and, and returns weren’t as strong as you would want, but now you’re seeing more, more and more types of index oriented investments, uh, lower cost investments and a broader array of investments, not only in us, but international and in fixed income. And so, you know, you have to be careful about just going with a company that slaps an ESG label on the end and saying, Hey, look at what we’re doing. And every fund, quite frankly, has some sort of an element of ESG or environmental, social, and governance.

It’s, it’s good. It’s good for the business. You know, you think, I think of a company like Coca-Cola, for example, a lot of water goes into their business on it, and it’s worth their while to increase, you know, increase their shareholder, their profitability and earnings by figuring out ways to reduce their energy, to reduce the amount of water that they use as well as have a good workforce and these good stewards of the community. Those are all built into a company and can be considered as ESG factors, even though Coca-Cola might not be an ESG type of a company. So there’s a lot of different nuances behind it. Um, and, uh, we’re really excited about being able to offer, you know, a number of funds, uh, in, in the portfolios or availability as Chas says. So more, more to come on that, um, uh, soon, you know, the last thing I’d mentioned about that is that the, the fact that this data is now available allows you to build portfolios without sacrificing return or risk. Um, so you can, you can, you can, um, achieve the same goals through portfolio structure, construction, and, and achieve your goals. As far as an ESG screen, um, goes and not take outsize risks or reduce your return. That’s, that’s a major development.

Great. And I did share the results, um, uh, half people responded and it was, uh, somewhat split, but it’s interesting. Lots of people are still interested in learning and researching more. So I think this is a great, uh, beginning of that discussion, um, more to come, certainly. And I’ll also just say, um, we do have an article coming out in our next newsletter around it. So we’ll look out for that as well, if you’re interested in learning more and of course, contact your wealth manager as well. Um, so I’m just looking at the time it’s already four 55. We, we do have a few more questions. Um, if you could just answer a couple quickly, um, so a few came in actually were pre-submitted. So I want to make sure we get to those. Um, one is on, um, Bitcoin and, you know, we’re hearing a lot, again, like we’re talking about the 24 seven news cycle, we’re hearing a lot of news and headlines around Bitcoin. So if you could add some perspectives on that next, that would be

Sure I’ll, I’ll start out, uh, you know, Bitcoin, uh, incredible technology, a lot to be thinking about in there, uh, in terms of the technology, if you think about kind of investing in a Bitcoin, uh, versus the technology behind it, uh, you know, it’s, you know, the whole idea of back in, you know, in the gold rush, the people who made the money were those that sold the picks and shovels, not people would actually mind the goal. So Bitcoin itself, there’s just hate to say it, but there’s a lot of fraud and a lot of it’s not there, there, right. It’s very, very difficult to really get behind something that’s just so way morphous, uh, as a, as a what people call a currency, it’s, it’s a technology and there can be value created around the technology. It’s, you know, how do you own it, uh, securely, you know, how do you exchange it for value, uh, at a secure custodian? I mean, just a couple of weeks ago, the New York attorney general, uh, settled the fraud law lawsuit with a significant, uh, Bitcoin company. So, you know, the technology behind Bitcoin called blockchain different discussion, it’s going to have an incredible impact and why to different areas Bitcoin in and of itself is at this point from our fundamental perspective is really, really hard to get behind. But here’s the other thing about headlines. Bitcoin had a huge run-up 2017 into 2019, then it dropped 90%.

Now it’s gone back up. So every headline is interested in now that it’s gone back up 900%. The whole idea is that why weren’t people interested in it was down to 95%, is that these peaks that the headlines start picking up. And so, you know, will it be around for awhile? It’s hard to put that horse back in the barn, but it’s really got to think about how the technology is going to work going forward.

Thanks, George. And similarly in the news has been GameStop and Robin hood, uh, you know, at least a few weeks ago, it was, it was definitely dominating the news. So, um, getting insights you’d like to share on that one,

Be happy to, I’d be happy to go first. Um, I would just summarize the whole, the whole experience with something like GameStop or some short-term phenomena, as you know, with a quote from Benjamin Graham and Benjamin Graham, if you don’t know, was a, was a, a really famous investor or you’re early in the last century who was, uh, actually an instructor for Warren Buffett and Benjamin Graham famously said that in the short run, the stock market is a voting machine, but in the long run, it’s a weighing machine. And what he meant by that is in the long run, what matters are earnings and fundamentals in the short run, it’s a popularity contest, right? And, and so you get big swings in value in the short run and in the long run, it’s the fundamentals that are going to rule the day. Um, so the short-term swings you see in GameStop, I don’t think, I think it would be very hard press for any credible financial analyst to say those short-term swings were due to the fundamentals of the company.

Yeah, I agree. I had nothing to do with the fundamentals of the company. And I think that as long-term investors, you know, we have to realize that this kind of thing doesn’t really impact us unless we happen to be trading GameStop on, on any one of those particular days, but what we are. And, um, and that’s, that’s not what we’re doing. I think the concern is that people get harmed by this type of speculation, normal ovary game, stock millionaire. There’s some poor soul who was on the other side of that trade and, and bought at the high and then rode her all the way back down again. So these, this kind of stuff, um, uh, sort of entertaining to watch, but when you think about the human aspect of it, it’s, it can be concerning as well.


All right. It’s at the top of the hour that went by very quickly. I always like to end with kind of a lighter question. Um, you know, collectively, I don’t want to age us here, but we have a lot of wisdom here in this group. Um, if we were to recommend any kind of resource to any of that, anyone listening on the call today around investments or the market or [inaudible], um, what might you recommend and do you want to throw in something you’re reading for fun or listening to for fun too, that would be great as well.

One of my favorite investment books of all time is by Nick Murray, it’s called simple wealth, inevitable wealth. In fact, we keep a pile of them in our office and we give them away like cookies. Um, it’s not a complicated book, but I think there’s a lot of wisdom in its pages. That’s a great book.

That is a good book. Okay. Chas,

Um, one of the books that we’ve used over the years sort of in conjunction with that is the investment answer, um, which is a really short, um, easy read that talks about, um, just fundamentals of building portfolios and how you think about risk and re and return. That’s a great book, um, on the lighter side, um, as a fly fisherman, uh, I’m often reading fly fishing related books, and the latest one is called dumb luck and the kindness of strangers by John [inaudible], who’s a really famous, uh, author in fly fishing is a good combination of humor and fly fishing lure. Um, and then on the other side of the equation, I love to read history. And, uh, one of my favorite authors, James Arnold just came out or just published a book on, uh, called Octo or titled October triumph. It’s Napoleon’s 1806 campaign in Germany. And I’m really interested in history is fascinating. Uh, the operational aspects of that. So those are, those are my recommendations.

Great, George you’re next?

Well, I think, you know, I like to read history as well, and, uh, I love to read, uh, memoirs and histories of people who were overcoming incredible odds. Uh, and I just finished a long book, but a memoir by Condoleezza rice. I know higher honor, incredible book taking her, the whole journey of her chair on Washington and all the, everything that’s gone on over the decades, really a tremendous book, almost like a fly on the wall. Uh, and, um, then, you know, for lighter, I just finished a book by the comedian, Nick Offerman. He was in parks and recreation book called gumption. And it’s a little bit of a history book, but it’s also pretty funny. And, um, you know, just keeps you, keeps you grounded a lot of different ways, both.

Great. Thank you. And I’ll just make a little plug here. Um, uh, something I’m listening to Modera has two podcasts out. If for those of you who don’t know, we have the wealth cast hosted by Chas himself as well as decision dialogues, uh, which is a new podcast. So if you’d like more information on either of those, um, you can visit our website under client resources. Um, and finally, before we close out today, uh, there will be brief two question survey following this discussion. So if you could take a few minutes, we would really appreciate it. We really value all of your opinion. We take the feedback, we look at it, we don’t just put it in a, in a database. We will look at it and it helps us understand what’s relevant to you, how we can improve our services, how we can give you more content that’s useful. Um, so please take a minute if you can, to fill that in. Thank you once again, George, Karen, and Chas, for all of your wisdom today. And of course, thank you all for joining us, taking a little time out of your day to join in on the call and have a great evening, everyone.