How Financial Media Pulls the Strings

When I was a kid, my older sister Kim would often prey on my youth and ignorance. While this harassment took many forms, the instance I remember most was being “persuaded” by my sister and her friends to let them dress me up as a girl with makeup. It’s surprising how easily she convinced me to go along with her schemes like I was a puppet, and she was the puppeteer pulling the strings as she desired. As a young kid, I didn’t stand a chance.

Eventually, as I got older (and a bit wiser), I caught onto the game my sister was playing. Realizing that she was manipulating my emotions and reactions gave me a fighting chance, allowing me to cut some of those strings from time to time.

Those manipulative moments with my sister growing up parallel the relationship investors have with the financial media. Too often the financial media plays the role of puppeteer, pulling strings that shape and direct the emotions of investors, usually to increase their own profits. Investors need to develop the same kind of awareness that I developed with my sister, understanding the motives behind financial media in order to reduce vulnerability.

If It Bleeds, It Leads
Many have heard the old adage when it comes to nightly local news, “if it bleeds, it leads.” Financial media has adapted this mantra a bit, focusing on greed or fear to lead the way when it comes to capturing investor attention. They understand if you’re dreaming of making a fortune or scared of losing it all, they’ve got your attention. Next time you’re watching your favorite financial TV channel, watch for the following puppeteer moves:

  • Notice how often words like plunge, plummet, or surge are used both in conversation and plastered in all caps on the screen. These words push our internal greed and fear buttons, which causes us to watch longer.
  • When discussing stock market performance during the day, note how often financial TV references the Dow versus the S&P 500. Why? The Dow is trading around 35,000 while the S&P is trading near 4,500. One percent of the Dow is 350 points while one percent of the S&P is only 45 points. Which number scratches your greed or fear itch more? The larger number, of course. It’s a subtle but intentional way of exploiting investors’ emotions.

Financial Media Motivators
On any given day, the market experts on your favorite financial news channel make dozens of market predictions. Do advertisers pay more money for commercials based on the daily number of accurate market predictions? Of course not. Ad rates are driven by viewership, commanding top dollar for more eyeballs rather than spot-on market predictions.

It would be nice if the financial media’s primary goal was to support or enhance an understanding of your investment goals, but that’s not the case. Financial media’s primary goals are strong ratings. Put plainly: big viewership leads to higher company revenues and profits.

To be fair, financial media will always have a hard time focusing on your investment goals. The advice they give is unaware of your investment profile: short-term or long-term horizons; low, medium, or high-risk tolerance. It’s tough for them to narrow their commentary based on your personal goals, whether it’s funding college tuition, buying a second home, or retiring comfortably. You wouldn’t take exercise advice from a trainer who didn’t know your body type or fitness goals, why take investment advice from experts who know nothing about your financial goals?

Opinions Not Accuracy
Former Forbes Magazine CEO Steve Forbes once said, “You make more money selling advice than following it. It’s one of the things we count on in the magazine business – along with the short memory of our readers.” Many investors tend to believe that financial experts are paid because of the accuracy of their market predictions. Mr. Forbes made it abundantly clear that even media leaders themselves know this isn’t the case.

“You make more money selling advice than following it. It’s one of the things we count on in the magazine business – along with the short memory of our readers.” — Steve Forbes, FORBES Magazine

Financial experts are paid to have an opinion, NOT to be right. And like any good salesman, their opinion should be extremely convincing and somewhat entertaining, which they usually are! In baseball, before a batter steps into the batter’s box, you know the likelihood of that player getting a hit before they take a swing. Their batting average is available for all to see. When was the last time you saw a market expert’s stock pick average posted on the screen as they stepped up to make another market prediction? There’s a reason you don’t see it and it’s the same reason your college career counselor told you not to put your GPA on your resume if it wasn’t impressive.

Financial Education or Entertainment?
Given how financial media is compensated, it’s fair to ask if they’re in it to educate or entertain investors. One way we can answer this question is by looking at the people hired to produce some of these financial news shows. Susan Krakower is the former producer of Jim Cramer’s highly rated Mad Money show on CNBC. Her illustrious production career also includes stints at The Jerry Springer Show, The Maury Povich Show, and The Sally Jessy Raphael Show. You connect the dots.

It’s not that financial media is all bad. There are many highly respected sources for financial news. But it’s critically important that investors know that the primary goal is strong viewership and ratings, not addressing individual financial goals. Without this awareness, the greed and fear drivers can put investors at great risk of excessive trading, worrying about the markets, and making irrational investment decisions that can wreck financial plans.

By recognizing that often financial media’s goals are not aligned with our own financial goals (or risk tolerance, or time horizons), investors can prevent their emotions and focus from getting hijacked and instead stay focused on their long-term plan.

by JOHN FISCHER, CFA®, CFP®
John is the Chief Investment Officer (CIO) at Mosaic Family Wealth. He leads the firm’s Investment Committee which shapes the firm’s investment philosophy and strategy for client portfolios. He also serves on Mosaic’s Leadership Team. A 20-year industry veteran, John is most passionate about helping people understand how emotions relating to investments can be more important than the investments themselves in achieving financial goals.

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Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice. If you would like investment, accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs.

Mosaic Family Wealth, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Mosaic Family Wealth, LLC and its representatives are properly licensed or exempt from licensure.

The Elephant in the Room

There’s no need to beat around the bush: prices are higher. We’re reminded every time we fill up our gas tanks, where prices have risen by 50% over the last year. We see it at restaurants where a lack of workers leaves tables empty and menu prices have risen to fuel the higher wages needed to attract employees. If you booked a summer vacation, you felt the higher prices as hotel, car rentals, and airline prices have all risen. Bought a house or a car recently? You’ve certainly felt the pain of higher prices as well.

Investors don’t have to look far to see that prices have risen. Last year, prices for many goods were artificially suppressed due to the government-induced coma on the economy thanks to the global pandemic. That means inflation is higher in 2021 in part simply because it is being compared to abnormally low 2020 prices. Increased consumer demand as the economy has awoken from its pandemic slumber has also put upward pressure on prices along with supply constraints (like the shortages in semiconductor chips & labor we are seeing, and higher prices in inputs such as lumber and energy). Add it all up and it’s not surprising that inflation is running higher right now. All of this raises the question: should investors be worried about inflation?

The Trillion Dollar Question. Is the current elevated inflation a temporary phenomenon (“transitory” in Fed speak) or a more persistent, longer-term issue for the economy? More importantly, why does it matter?

Consider a restaurant that normally serves 50 customers per night. But in the past 2 weeks, they’ve serviced 75 customers nightly. Would you suggest the restaurant substantially increase its staffing and food on hand due to the recent surge in demand? If the business pick-up is only temporary, the restaurant risks losing money due to raising its input costs. If the demand is more persistent and the restaurant doesn’t increase its food and labor supply, the restaurant risks losing business because it lacks enough resources to serve the additional customers. The Fed is trying to answer a similar question with inflation – if it’s temporary, then they shouldn’t overreact with a knee-jerk reaction, but if it’s not temporary then they need to look at taking action to curb inflation sooner than later.

We have seen some signs that inflation is possibly moderating as monthly inflation figures are off their highs from earlier in the summer. If you look at the level of annualized price increases over a two-year timeframe, as opposed to using 2020 depressed price levels, inflation levels start looking less elevated as well. The dramatic price increases in certain portions of the economy due to supply chain disruptions are pulling overall inflation figures higher, though they’re likely to be more short-lived. In our view, we believe that current inflation levels are more temporary in nature, but that inflation will be modestly higher for some time. Investors should be cautious when attempting to predict future inflation as this unique economic environment was created by the worst global pandemic in a century. Comparisons to past market cycles aren’t likely to be highly instructive during present circumstances.

The cost of getting too cute. During the Great Recession of 2007-09, hedge funds fared relatively well in helping high net worth investors reduce their losses. In the years that followed, a new asset class was born called liquid alternative investments that were pitched to all investors as a product that would offer downside protection and enhance portfolio returns over the long term. The implication was that the typical portfolio of stocks and bonds no longer worked, and investors needed to think differently if they want to avoid the next market drop.

From 2010-2019, the median performance of liquid alternative funds was 1.66% per year. Over that same timeframe, the S&P 500 returned 13.5% per year and the Barclays Aggregate Bond Index returned 3.75% per year. If you shifted a portion of your fixed-income allocation to liquid alternatives, you lost 2% per year. If you shifted a portion of your equity portfolio, it cost you nearly 12% per annum. Investors paid dearly for trying to get too cute. Remember that staying the course, not repeatedly shifting your portfolio, and playing the long game IS a strategy –  a time-tested successful one at that.

What’s the best hedge for inflation? For fixed-income portfolios, the best hedge for inflation is owning Treasury Inflation Protected Securities (TIPS). TIPS are bonds issued by the US government. Total return will likely not be much better than inflation, but TIPS will keep up with inflation. In general, the best portfolio hedge to inflation over time has been owning a diversified basket of stocks. Since 1970 alone, the cost of goods has increased roughly seven-fold in the U.S. Over the same 50 years, the S&P 500 index has increased by more than 40 times. This serves as a reminder for investors of the importance of seeing the equity forest through the inflation trees.

You don’t have to look long or hard to notice that prices are running higher right now. How long they remain elevated and when they subside as we return to a more normal economic environment is the magic eight-ball question. Rather than trying to predict the unpredictable, long-term investors can protect their portfolios from the uncertainties of inflation and silence the elephant in the room by owning a balanced portfolio of stocks as part of a diversified portfolio.

 

 

 

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Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice. If you would like investment, accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs.

Mosaic Family Wealth, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Mosaic Family Wealth, LLC and its representatives are properly licensed or exempt from licensure.

Global Mindsets Yield Gold Medal Portfolios

With the extinguishing of the Olympic torch, the near-constant attention on the exploits of your home country’s team will start to fade. Having an instinctive home bias towards your own country’s athletes while watching the Olympics is expected and comes with minimal downside risk. Unfortunately, many people have an instinctive home bias in their investment portfolio as well, which comes with greater risks when trying to achieve your financial goals.

Here are four reasons why an international mindset works better for an investment portfolio than the home bias that usually accompanies watching the Olympics:

  1. Protect the Bottom Line. The primary benefit for investors who own international stocks as part of a diversified portfolio is that over time this can increase returns while reducing risk. The leading guidance indicates that volatility reduction can be accomplished when investment portfolios are comprised of a range of 20-50% in international stocks. Remember, if you lose 50%, you have to earn 100% (double) to make it up. If you only lose 20%, you only have to earn 25% to make it up. Because U.S. & International returns don’t move in the exact same direction at the same time, pairing the two investments together can reduce the magnitude of portfolio downturns, which increases returns and reduces portfolio fluctuations.
  2. Sector Diversification is Important. A bias towards your home country’s stocks can also skew the diversification of your portfolio across different industries. The U.S. stock market presently has one of the largest concentrations of technology stocks and one of the lowest allocations to cyclical sectors such as consumer discretionary, financials, industrials, energy, and materials. These allocations have been a tailwind for investors owning U.S. stocks in recent years due to the success of tech stocks. But no trend lasts forever. Cyclical stocks tend to do better during economic expansions as consumers increase their consumption. By owning a more globally diversified portfolio, investors can reduce their risk to any individual sector and broaden their portfolio exposure to benefit across different stages of the economic cycle.
  3. Outperformance tends to be cyclical. Like most things in life, the relative performance of U.S.stocks compared to international stocks tends to move in cycles. The current period of U.S. outperformance has spanned more than a decade dating back to the Great Financial Recession, which is the longest run of relative outperformance in the past 50 years. During the last cycle of international outperformance “BRIC” stocks were born, a term that was coined to define the surge in performance from emerging markets Brazil, Russia, India, and China. It’s impossible to predict when one cycle will end and another begin, but we know it will happen eventually. If you’ve avoided or minimized international investments in your portfolio, now could be an opportunistic time to gain a better global balance to your portfolio.Relative Performance Chart
  4. Valuation Matters. Markets can ignore valuations in the short term but in the long run, they tend to be one of the biggest drivers of stock market performance. Whether using valuation metrics such as price-to-earnings ratios or dividend yields, international valuations currently look more attractive than U.S. market valuations. This should come as no surprise when you consider that the U.S. market has outperformed the international market for the better part of a decade. Valuations of international stocks have historically been cheaper than their U.S counterparts but that dispersion is even wider now than in the past.

 

Watching Olympians perform reminded us that positive results require more than just a knack for doing something, but dedication to the process.

Strategic, long-term investing requires patience and appreciation for the fact that no strategy works all the time. As famed investor George Soros said, “correct investing is painful.” Watching international stocks lag U.S. stocks is tough because it makes us want to run back to our home bias. But by building a balanced portfolio that owns a basket of stocks spread across different industries in different countries, we can increase our chances of achieving our financial goals.

 

by JOHN FISCHER, CFA®, CFP®
John is the Chief Investment Officer (CIO) at Mosaic Family Wealth. He leads the firm’s Investment Committee which shapes the firm’s investment philosophy and strategy for client portfolios. He also serves on Mosaic’s Leadership Team. A 20-year industry veteran, John is most passionate about helping people understand how emotions relating to investments can be more important than the investments themselves in achieving financial goals.

 

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Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice. If you would like investment, accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs.

Mosaic Family Wealth, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Mosaic Family Wealth, LLC and its representatives are properly licensed or exempt from licensure.

4 Profitable Ways to Invest Your Time

One of the most valued benefits of a successful life is the ability to control your time. Dedicating yourself to endeavors of your choosing can lead to long-term impact and help shape a lasting legacy as you move from success to significance.

Here are four ways you can invest your time that are worth considering:

#1: Join A Board – On your path to financial success, you have likely engaged with a variety of boards working to impact wide-ranging social issues. As a result, you can call to mind those that functioned healthily and those that struggled to find their footing. Imagine the impact a seasoned business leader can offer to the success of a board’s mission? Individuals who know how to see success and can contribute insights and experience to help an organization achieve its goals are highly sought after.

Investing your time on a board is a meaningful way to leverage your professional knowledge towards a cause that is meaningful to you. Your success will be tangibly seen at both an individual level through people’s lives changed and organizationally as your time investment turns into organizational impact. In addition to contributing towards an important cause, board service often yields valuable networking opportunities as well. Amplify your voice and thus your significance using the lessons learned across a successful career to make a difference in the world around you.

When considering investing time in a board, consider these options:

  • Local boards are often seeking seasoned guidance from professionals across various industries to help them move to the next stage. Serving a term in a cause-related group will elevate their output and deliver meaningful value back to you.
  • Thriving national or global organizations might afford you an opportunity to widen your circle of influence while benefitting from the fresh perspective you can provide.

#2: Higher Education Speaking – We all have people that have inspired us. You likely can recall a moment when someone shared something publicly in a way that ignited a lasting effect. For many, this experience happens at the collegiate level, with a lecture or course that alters your life trajectory. Universities are constantly looking for professionals that can fill speaking slots that will serve to inspire their students.

Taking a speaking role at a college or university is a terrific way to offer a glimpse into the expertise that led to your personal success. It’s an ideal way to not only invest your time but create a legacy. You might consider visiting your alma mater to offer a keynote speech or sharing a guest-lecture series on a topic on which you are an expert. Public speaking of this type allows you to summarize your vast experience in a memorable narrative with potent takeaways most professors would love to showcase in their classes or schools would like to offer to their student body. The lessons learned along your path to success, including roadblocks and failures, can serve as a clear inspiration for those just beginning their journey.

When considering investing your time through public speaking at a university consider the following:

  • Identify a university or academic institution where you might already have a connection – your alma mater or a one where you have previously invested financially for example.
  • Develop a lecture or a speech around key lessons learned along your path to success, and make sure to include plenty of stories that bring those lessons to life.

#3: Champion an Event – Invitations to charities, auctions, and galas are par for the course for successful individuals. Unfortunately, they’re not all organized with the same level of passion, quality or value add for those that attend. Imagine leveraging your time towards helping to guide a charity event of some sort into the kind of opportunity that would most appeal to yourself and your peers.

Serving as a committee chair can allow you to use your unique points of view to help an organization meet its goals in the most impactful way possible. Likely, you have access to a trusted network that will take your meeting or call, support with their expertise, or even contribute specific assets, solely because you are involved. Like starting a non-profit, begin by clarifying your role to ensure your time spent offers maximum impact while allowing others to take on tasks more aligned to their expertise.

When considering investing your time by championing an event, consider the following:

  • Personal alignment with the event goal will be the key to true personal significance and satisfaction.
  • Choose an event or organization that allows you to wholeheartedly get involved.

#4 Go One-on-One – Big plays can offer big rewards, but sometimes an even greater difference can be made as you invest your time more individually. You most likely have someone or a select number of people in your life who you credit with guiding you at some level during a crucial point on your path towards success. As you consider how to invest your time, choosing to mentor someone or simply spending time offering guidance is an investment that may lead to possibly the greatest personal significance.

Like the person who saw the spark of success in you, choosing the right person with whom to invest your time is essential. Many people will likely be desirous of your time, opinion, and connections, but few should receive it. Consider investing in a person already on a path toward success but in need of guidance. Your personal experience and success can offer valuable wisdom that can’t be found in other ways.

When considering investing your time with mentoring, consider the following:

  • Intentionally structure time with the person you are mentoring so that your investment pays dividends in actions and opportunities.
  • Consider the amount of time you are willing to invest. Mentors are often sought out in greater frequency in pivotal times along a person’s career journey. Make sure to be clear about the amount of time you can commit.

You’ve worked hard to take control of your calendar, now allow that freedom to give you a more meaningful return as you invest in purposeful opportunities. Wisely investing your time allows you to take your personal success and transform it into lasting significance.

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Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice. If you would like investment, accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs.

Mosaic Family Wealth, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Mosaic Family Wealth, LLC and its representatives are properly licensed or exempt from licensure.

The Compan(ies) You Keep

When it comes to building your wealth, it’s just not about how much you earn that is important. Those seeking significance make sure they focus on earning with a purpose. One of the best ways to earn with purpose is through the company you keep… that is, the actual companies in your portfolio. 

On your wealth-building journey, there will be times when growing your net worth will require buying or building a business. 

IF YOU WANT TO BUY AN EXISTING BUSINESS… keep in mind that it’s not always as easy as it seems.

Sure, buying an existing business can lead to significantly faster and less risky returns on an investment. Your acquisition usually gives you an established and proven business…. instant team, established customer base, cash flow, inventory, distribution, etc. You’re able to get into an existing market fast and are able to get instant returns in most cases.

Buying an existing business though also means taking on someone else’s vision and framework. Although you can always work towards tailoring the business to your own specs, you’ll have established infrastructure to work around.

Buying an existing company usually follows one of four paths:

  • The Turnaround: These companies are usually in disarray which makes them great targets for takeover by someone who can create immediate value by improving existing systems.
  • Eternally Profitable: The proverbial cash cow company. These established companies have no obvious threats to their model which makes them pricier for acquisition but more valuable in the long run.
  • High Growth: These opportunities come around when an existing owner is typically overworked and is looking for an exit from a business that has remarkable numbers in terms of growth, revenue, and earnings. Keep in mind that exits tend to equal pricey, but you get a business ready to deliver in return.
  • Platform: This is for the buyer who has a proven skillset that can solve the deficiencies in an existing company. They buy with an intent to pivot the business towards a new way of operating, hoping this change will quickly move the company to the next level.

To make an acquisition work for you:

  • Make sure you have someone on your team with development experience. A development executive can quickly understand the needs at the new company and outline the opportunities.
  • Integrating an existing piece of business requires finesse and careful consideration. You’ll want to keep IT, HR, accounting, and other systems in mind, determining how to integrate them into your existing platforms or figuring out ways to efficiently run them in parallel. 
  • You’ll likely need more than just legal assistance. Have solid financial controls in place ahead of the acquisition to protect your existing investments. If the new addition to your portfolio fails, you don’t want it to crash your entire empire. 

IF YOU WANT TO GROW YOUR BUSINESS… make sure to be realistic about the work it will take.

Investing in real estate is one common way investors build wealth. Building and growing a business is another key approach that generates income that can impact your overall net worth. Growing something from scratch can also offer independence, flexibility, and the thrill of fleshing out your own vision.

Making your business a wealth-builder and not just an income-generator requires creating value. This means moving beyond producing a commoditized product towards offering something unique and hard to replace. You want to turn your business into something that will be missed if it goes away. Growing your business with this kind of value in mind makes it an asset on your balance sheet, alongside property and investments, that can eventually be sold. Making your business more than a side hustle can turn it into a prime contributor to your overall wealth.

To make expanding your business work for you:

  • Ask yourself if your business offers the growth opportunity you are seeking. Nothing is worse than scaling a business that doesn’t have adequate demand.
  • If your market is mature, you may not be able to extract the level of return you desire, even with an infusion of cash and time. So, do extensive research into parallel industries or other segments of your current industry that you are not engaged in to see if there is space for innovation. 
  • Plan ahead for potential costs related to an expansion, including building & equipment costs, new tax implications, inventory, and supply chain needs, and of course, expanded personnel.

Whether you choose to buy an existing business or expand your own company, the wealth advisors at Mosaic Family Wealth are available to provide guidance along the way. From cost-benefit analyses to mapping out the best strategic routes, our team is available to make sure that your journey towards significance is as smooth as possible. 

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Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice. If you would like investment, accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs.

Mosaic Family Wealth, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Mosaic Family Wealth, LLC and its representatives are properly licensed or exempt from licensure.

Generational Impact, Pt. 2

The conference call line opened up, and one by one, members of the family identified themselves. The CEO of this well-known business enterprise, now in its 3rd generation of family leadership, informed the participants that their approval was needed, and their questions expected. The topic of discussion centered around what would become one of the biggest acquisitions in the history of corporate take-overs. This call was scheduled to get buy-in from every family member in the execution of the multi-billion-dollar deal. Each one of them would need to contribute to the purchase price The eloquently phrased first question to the CEO about long-term debt came from a 13-year-old G4 member of this family. His healthy inheritance would contribute hundreds of millions towards the purchase price.

Sounds like a scene from a high stake’s drama, doesn’t it? But this call actually happened not too long ago, and the deal exponentially grew this already enormous company, ensuring that this family would breeze past the typical generational curse that tanks many family enterprises before the great-grandchildren (G4) can step into leadership. But how did a 13-year-old know enough and have enough confidence to ask such a pertinent question?

On the journey to go beyond success towards significance, making time to educate younger family members on financial literacy and wealth principles is as much a part of building a successful enterprise as picking a CEO or choosing when to expand the business. Below are four principles that successful multi-generational families embrace.

PRINCIPLE #1 – INCOME HAS LITTLE TO DO WITH WEALTH
It’s easy to look at the balance sheet and assume you’re wealthy. In this simplistic view, children of wealthy families fail to understand the important distinction between assets and liabilities. Younger generations can easily focus on the income-producing assets that drive up family valuations, but they need to also understand the impact of liabilities, and the important role that reducing high-interest debt plays in providing a clear picture of wealth. The prominence of digital tools and systems can get in the way of this understanding.

Kids growing up today have a much different relationship with money than in years past. They are more focused on mobile banking, investment apps, and an almost zero-cash lifestyle which requires little need to focus on the details or on understanding the full picture. Helping children of a family enterprise to be well-versed in concepts like debt, savings, investments, and budgets can result in the preservation of the families’ achievements. Most importantly, through a focus on key habits that lead to wealth, we teach children that it takes time, effort, and discipline to grow the bottom line.

PRINCIPLE #2 – KIDS CAN UNDERSTAND MORE THAN YOU THINK
Multi-generational families embrace an openness to discussing wealth. They don’t hesitate to talk about their business and the various components that have led to their success. They also don’t shy away from exposing their children to the challenges and the inner workings of how the family built their worth. They invite their kids to sit in on business calls, encourage them to ask questions during shareholder updates, and celebrate ideas that might lead to product or process innovations.

Forward-thinking families teach their children the importance of building long-term financial stability through deliberate actions. They make sure their kids consider the various costs of running the business and invite them to take on personal responsibility through contributions to the family legacy. To cement these lessons, children of successful wealthy families are exposed at an early age to how investments work, and how to read financial documents, including the monthly balance sheets. They learn what to look for in the markets, the differences between liquid savings, stocks, mutual funds, real estate, and property, and how to understand a myriad of other wealth-building vehicles. They are exposed to business processes and decision-making approaches.

The underlying lesson that is reinforced throughout childhood is the idea that wealth-building requires knowledge, commitment, and good judgment. This often means postponing personal needs and controlling reactive urges.

PRINCIPLE #3 – GENEROSITY LEADS TO PROSPERITY
Helping those that are less fortunate or supporting causes for which you are passionate about is another key principle taught to children of families seeking significance on their wealth journey. Of course, from a wealth management perspective, they learn that charitable contributions are helpful when it comes to tax time since they help reduce taxable income. However, today’s younger generations tend to get more excited when they are reminded that supporting causes with a personal connection can lead to great satisfaction while positively impacting the world around them.

Exposing kids to the charitable endeavors the family supports, and modeling for them early on how to join in with their own time and money, will make sure that they recognize that wealth is about so much more than just a lot of money in the bank.

PRINCIPAL #4 – WEALTH IS ABOUT MORE THAN MONEY
Most people automatically associate wealth with money. The bigger their bank account, the wealthier they think they are. What sets accomplished multi-generational families apart is an understanding that wealth is about the freedom to maximize your time, talents, relationships, and faith. Making sure that children and grandchildren appreciate the full capacity of a well-lived life allows them to experience true wealth that contributes towards a long-lasting legacy.

Multi-generational families center themselves on living the fully engaged life that wealth enables, including making significant contributions to their communities. Children of generative families learn early on that success is the result of consistent action.

At Mosaic Family Wealth, we work with families that are looking to go beyond success towards significance. Our family office team can offer investment oversight, financial reporting, guidance on securing a long-term financial future, as well as providing insights on how to weigh important family decisions. We can also support your efforts at educating younger generations about responsible wealth management, business competence, and stepping into a role that extends the families’ generational impact.

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Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice. If you would like investment, accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs.

Mosaic Family Wealth, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Mosaic Family Wealth, LLC and its representatives are properly licensed or exempt from licensure.

Generational Impact, Pt. 1

Delicious jams, jellies, and preserves instantly come to mind when many of us hear, “with a name like Smucker’s, it has to be good.” This famous slogan has made the brand a household name. But what should really catch your attention is the unique position this company holds as one of the few privately held corporations that still has family leadership five generations after first launching. The J.M. Smucker Co is currently run by Mark T. Smucker, the great-great-grandson of the founder who launched the company in 1897. Most family businesses rarely make it past the third generation.

Smucker’s first launched its “beloved brands” in Orrville, Ohio from the back of a horse-drawn wagon. Today its diverse portfolio generates billions in revenue and hundreds of millions in profits. Despite an ever-expanding product line-up, the last name has remained consistent in the chief executive’s office —J.M. Smucker (1897-1947), his son Willard Smucker (1948-60), his son Paul Smucker (1961-87), brothers Timothy and Richard Smucker (2011-2019), and now Tim’s son, Mark Smucker. Another consistent factor throughout the history of this American success story has been a clear family commitment towards building a long-term legacy.

The Smucker’s understood early on the importance of developing a set of shared values. This is a major key when it comes to having an impact as a successful multi-generational family. Making sure that heirs are aware, engaged, and committed to shared values is crucial when preserving the success of the family enterprise from generation to generation. For over 100 years, the Mars family, among the wealthiest in the world, has also managed to build and preserve an incredibly successful family empire, with well-known brands like M&Ms, Snickers, and Pedigree. As they enter their fifth generation of family business ownership, they attribute much of their success to a commitment to their well-publicized “Five Principles”: quality, responsibility, mutuality, efficiency, and freedom. All family members, not to mention every one of their 70,000+ employees, are required to know and understand these principles which impact every decision made by the company. The family regularly discusses and engages in meetings and training revolving around the principles, ensuring that they are a foundational element driving their company’s vision and fueling longevity.

Many family-owned businesses begin with a bit of secrecy or reticence to share information. Founders often struggle to be open & transparent with the rest of the family. The sooner you can release some of that control and engage younger generations, often labeled simply G2 or G3 based on how far they are removed from the founder, the more likely it is that the family continues to hold onto the business and the potential for significance. This is another key for generational impact. It’s important to make sure that siblings and cousins are knowledgeable about key business information, agreements, processes, and major deals. Making sure that family members can read and understand business plans and financial documents allow everyone to have ownership of the ups and downs of the company. Training in how to read profit and loss statements, understanding supply chains, or how to develop pricing structures, among other business skillsets, makes it more likely that family members in G4, G5, and beyond will be ready to step in willingly when needed and add value right away.

Successful multi-generational family endeavors also share a commitment to make it about the business as early as possible. To continue having an incremental impact, eventually, wealthy families must prioritize the needs of their business above the focus on individual family member opportunities. This may require hiring more experienced, non-family talent to run the business, develop products or expand service offerings. Leadership positions for family members should not be assumed but earned. Developing professional outlooks, financial discernment, and skills in the management of large business enterprises early on reduced family member tensions as everyone will be focused on the outcome that offers maximum value.

Generative family enterprises extend their legacy when individual members develop different skill sets and business experiences outside of the core business they grow up experiencing. In addition to networks that are built, encouraging outside interests, studies, and jobs provides a broader set of insights that can be applied towards the success of the family business. Often, this is where multi-generational families begin to really shape their expanded social, relational, and spiritual capital.

At Mosaic Family Wealth, we work with multi-generational families that are hoping to establish the kind of legacy that is exemplified by the Smucker’s and the Mars family. Our team works with clients on the various aspects of managing a successful family office, from investment oversight to financial reporting, outlining steps to help you secure your long-term financial future, as well as providing insights on how to weigh important family decisions. Our experienced team can support your efforts at teaching younger generations about responsible wealth management, business competence, and dealing with expanding families and their role in the business.

Stay tuned for part two of our Generational Impact series where we will focus on specific wealth-related topics younger generations should master early on.

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Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice. If you would like investment, accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs.

Mosaic Family Wealth, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Mosaic Family Wealth, LLC and its representatives are properly licensed or exempt from licensure.

The New Normal

The start of a new year is a great time to renew your focus on the journey from success to significance.

As we come to the end of what seems like the longest political cycle in recent memory, with the shift in control of Congress from Republicans to Democrats, near-term tax implications and long-term estate plans may require some new considerations. The wealth advisors at Mosaic Family Wealth are prepared to answer questions you might have to help ensure that your long-term strategies are still in focus.

The Biden Administration campaigned in part on tax policy ideas that would result in higher tax bills for large corporations and wealthy individuals. Democratic leadership in the 117th Congress, including control of the influential tax-writing committees in both chambers, means that Biden will have a less obstructed path towards making some substantial tax policy changes.

As we shared back in November, our team is monitoring some key policy areas to ensure that we can provide ongoing guidance, allowing you to preserve the value of your investments and maximize your legacy to future generations. Here is an update based on a Democrat-led Congress:

  • Proposed Income Tax Increases — The President Elect has stated that he would like to increase taxes for those individuals who make more than $400,000 a year. With the Democrats taking over control of the Senate, there is a greater likelihood these types of changes could occur. Also keep in mind that under the Budget Reconciliation process, tax legislation may be passed with a simple majority instead of the usual 60% approval requirement. Tax changes that have been discussed include:
    • Extending the Social Security tax to any earnings over $400k. Under current law only wages under $137,700 are assessed Social Security tax.
    • Increase the top income tax bracket to 39.6% from the current 37%.
    • Bump capital gains rates to 39.6% for anyone with an income of $1 million or more. The current top capital gains rate is 20%.
  • Estate/Gift Tax — This is sure to be on the top of the agenda for the new Administration and should have Congressional backing. Democrats have discussed reducing this exemption to the $3.5 million “historical norms” of 2009, which would be dramatic change. As this issue comes up for discussion, our advisors will provide ongoing guidance on how to best deal with any changes that may affect your long-term goals.
  • Income Tax Basis Step-Up — It seems unlikely that the Biden Administration will seek to repeal the step-up basis, which provides for fair market valuation of assets at death, reducing tax liability to beneficiaries. Despite the “Tax the Rich” rhetoric that was heard throughout the campaign season, broad support among Americans for this type of change doesn’t seem to be there yet, making it unlikely that this type of legislation will garner interest with the current Congress.
  • Annual Exclusion Gifts — The Biden Administration is likely to pursue a significant reduction in the amount of estate and gift exemptions, potentially suggesting a cap on the total annual amount in any one year at $50,000. However, this may not be an immediate legislative priority. For now, the 2021 Tax Code exclusion remains the same at $15,000 and allows married couples to make non-taxable gifts (in cash or in kind) with a fair market value of $30,000 per individual annually.

In our highly connected, digital world, you are likely to hear about all sorts of policy proposals making the rounds in Washington, particularly in the next few months as the new President works to make a big impact in his first 100 days in office, as is tradition. This is the standard way that Washington operates and nothing that should cause undue stress.

Your front-line for understanding the repercussions of any changes are the team members at Mosaic Family Wealth. We are continually evaluating the environment and crafting strategies and guidance that will deliver the strongest opportunities for our clients.

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Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice. If you would like investment, accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs.

Mosaic Family Wealth, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Mosaic Family Wealth, LLC and its representatives are properly licensed or exempt from licensure.

Beyond Giving Tuesday

Maximizing your charitable impact beyond Giving Tuesday is a great way to provide a positive emotional, social & spiritual effect for you and your loved ones on your journey towards a life of significance. And December is a great time of year to consider charitable contributions as a way to positively impact organizations you care about.

With the help of a wealth advisor who can help you maximize advanced giving techniques aligned to your finances, values, and legacy plans, you might consider some of these philanthropic vehicles for your end-of-year giving:

  • CASH GIFTS: The CARES Act passed by Congress early this year as a result of the pandemic provided a significant change for individuals that choose to deduct 2020 cash contributions, raising the limits from 60% of adjusted gross income (AGI) to 100%.

Keep in mind that any excess contributions above your AGI limit will be carried forward for the next five years. Also note that these changes only apply to cash contributions made directly to a public charity, excluding supporting organizations and donor-advised funds. Stock donations and gifts to private foundations are still subject to the 30% of the AGI rule.

  • DONOR-ADVISED FUND (DAF): With this investment account you can set aside funds for the sole purpose of supporting charitable organizations you care about. Once your advisor sets up the fund, you make your donation and receive an immediate tax deduction while distributing the funds to charity over time at your discretion.

DAFs are particularly useful when something happens in your life that could make your tax bill especially high, like a large stock cash-out, or selling of a company or other significant asset. Creating and funding a DAF can help you manage your tax bill and enable you to set money aside for charities you can decide on at a later date.

  • QUALIFIED CHARITABLE DISTRIBUTIONS (QCD): This vehicle offers retirement savers taking required minimum distributions from their IRA accounts the opportunity to divert those distributions to a qualified charitable organization. If you are age 70 ½ or older, you can directly transfer up to $100,000 per year to an eligible charity. The benefit of using a QCD is that these distributions are not subject to taxes as a normal IRA distribution would be. But keep in mind that these contributions are not eligible for a charitable deduction, and the funds have to go directly to the charity and not to a donor advised fund.

Retirees might consider a deduction bunching strategy, which allows you to keep total expenses the same but increase total tax deductions over multiple years. When you bunch, you delay a year’s worth of charitable giving from one year to the next, giving double the amount to charity in the second year. The total giving stays the same, but the total tax deductions claimed are increased, which might make sense for 2020 contributions consider the earning challenges we’ve all faced.

  • PRIVATE CHARITABLE FOUNDATIONS: Setting up a private charitable foundation enables you to have almost unlimited ability to decide what to invest in and which organizations to donate to, even ones that don’t normally qualify for a tax deduction (like non-501(c)3s, international organizations, and individuals).

Private foundations generally require more of an initial investment than DAFs (hundreds of thousands plus vs. $5,000), but they allow you to make loans instead of grants if you want to provide an organization with the money it needs immediately but then collect it back at favorable rates down the line, enabling you to do good again in the future. Private foundations are also allowed to compensate family members who help you run the fund.

  • CHARITABLE TRUSTS: This popular tool involves putting money or assets into a trust that you guide but do not own. A trustee, or fiduciary, takes responsibility for the assets and then donates them to the trust’s beneficiary according to your instructions. (Some private foundations are set up as charitable trusts, but not all trusts are private foundations.)

Many people choose to set up trusts because you can often give to charity and continue to collect investment income from what you’ve donated. One way to do this is by setting up a Charitable Remainder Trusts (CRT) which allows you to collect the income generated from a donated dividend-paying asset, like stocks. After a set period of time, whatever’s left in the trust is donated to the charity of your choice.

Charitable deduction rules can be very complicated, and you should work with your wealth advisor and other financial professionals to ensure you are maximizing the tax benefit of any donation. The team at Mosaic Family Wealth is available to provide guidance.

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Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice. If you would like investment, accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs.

Mosaic Family Wealth, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Mosaic Family Wealth, LLC and its representatives are properly licensed or exempt from licensure.

NOW WHAT? Guidance on Post-Election Wealth Management

One thing we can all agree on is that this has been an exhausting election cycle. Let us help you breathe a little easier though. As the results of the election become clearer, our guidance remains the same as it has always been: stay the course.

Although we are still awaiting a formal conclusion to the presidential race, with a largely unchanged Congress, particularly the Republican retention of the Senate, we expect financial policies to remain largely the same. The advisors at Mosaic Family Wealth are keeping a particular eye on the Senate race run-off in Georgia. The outcome could have implications on wealth transfer laws & policies.

At Mosaic Family Wealth we are believers in the “hope for the best, plan for the worst” philosophy. Regardless of who’s in charge, a change in administration is a great time to revisit your long-term estate plans.

Although news coverage often focuses on the impact an election has on income tax, it’s important to review transfer tax laws with your wealth advisor as well, as these impact your ability to pass on your wealth to future generations.

Here are some key areas to keep in mind:

  • Estate/Gift Tax – The estate tax focuses on property (cash, real estate, stock, or other assets) transfers at death. The gift tax applies to transfers made while a person is living. Currently, federal law imposes these taxes on estates valued above $10 million indexed for inflation ($11.58 million in 2020). This law is scheduled to decrease to $5 million indexed for inflation beginning in 2026.

Democrats have been clear on their desire to raise this tax to “historical norms,” meaning a dramatic reduction in the exemption back to 2009 levels of $3.5 million. Without support from the Senate though, we believe it is less likely that drastic near-term changes will be enacted. Our advisors are staying on top of these developments and are prepared to discuss how any changes, whether now or in 2026, may affect your long-term goals.

  • Income Tax Basis Step-Up – Assets that are included in your taxable estate at death generally receive a “step-up” in basis for income tax purposes from an adjusted cost basis to fair market value, providing less taxes due to your beneficiaries. We expect that a potential Biden presidency will not find the support needed to repeal the step-up in basis.
  • Annual Exclusion Gifts – Another potential Biden proposal should he win the presidency may be a significant reduction in the amount of estate and gift exemptions, potentially suggesting a cap on the total annual amount in any one year at $50,000. This was a policy also favored by the Obama Administration. But again, without Senate support, we do not see this type of change being enacted.
  • Irrevocable Grantor Trust – This wealth planning vehicle provides assets protection for wealthy individuals by minimizing the ultimate tax burden to beneficiaries and keeping the assets out of the grantor’s taxable estate at death. We believe these trusts will continue to be used as a powerful tool to exclude assets and any appreciation from the grantor’s taxable estate at death.

In the increasingly unlikely scenario that Mr. Trump retains the White House, we don’t expect any changes to wealth impacting policies. A Biden presidency may not have the ability to make many changes either. Pushing fiscal policy changes through without Congressional support is highly unlikely. Keep in mind that differing policies are always being proposed in Washington, so don’t be alarmed when you hear about new ideas being discussed. The team at Mosaic Family Wealth stays abreast of the fluctuations and eventualities and can always provide you with solid guidance that can offer you peace of mind.

We encourage individuals to revisit their estate plans regularly with their team of advisors including their estate planning attorney, CPA, and wealth advisor. This is particularly important around a significant event, like a national election and potential legislative changes. We are ready to guide your unique circumstances, ensuring that you continue unimpeded on your journey from success to significance.

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Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing in this content is intended to be, and you should not consider anything in this content to be, investment, accounting, tax, or legal advice. If you would like investment, accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs.

Mosaic Family Wealth, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Mosaic Family Wealth, LLC and its representatives are properly licensed or exempt from licensure.