Tag Archive for: significance

Quality Questions Yield a Quality Life

It’s been said that quality questions create a quality life. Successful people ask better questions, and as a result, they get better answers. With better answers, they are better equipped to solve the problems or pursue the opportunities that lie in front of them on their path toward a life of significance.

With the stock market down more than 20% for only the second time in nearly 15 years, anxious investors are naturally starting to ask more questions. It’s in these times of worry that the quality of our questions becomes even more important because our emotions like to hijack our ability to reason. Here are some quality questions and answers investors should be discussing with their advisors.

Just how bad is it?
The first half of the year has seen a confluence of events that we really haven’t seen before – four-decade high inflation, war, a pandemic, Fed tightening, supply chain issues, and labor shortages. The combination of these economic and geopolitical challenges has driven the stock market into its longest bear market since 2008, while bonds have suffered a double-digit decline for the first time in decades. If the S&P 500 closed the year at its current level, it would be its sixth-worst year ever. With stocks and bonds both down year to date, it feels like there’s been no safe haven for investors. If you’re feeling uneasy, it’s understood. We haven’t experienced losses this severe for this length of time for well over a decade.

Despite this heavy dose of negative reality, the market outlook is not all doom and gloom when considering market fundamentals. There are many bullish indicators for our economy that give us hope:

  • Job openings remain near an all-time high1
  • Unemployment is near a 50-year low
  • Household debt as a percentage of income is at a 40-year low

The average U.S. consumer balance sheet remains healthy. Adding more hope to our outlook is the expectation that corporate earnings should grow by 10% for 2022, in line with the market’s long-term earnings growth rate.2

Is this market decline different?
It is and it isn’t.

Yes, this bear market is different than previous ones caused by events that are unique to this time we are living in. Not many saw a prolonged war coming in Ukraine, or expected global supply chain issues, both of which are contributing to our inflation woes that have pushed us into a bear market.

But it’s really a swap of one set of unknowns for another which makes this bear market similar to others. No one knew when tech stocks bubble would bottom, the housing market would end its freefall, or when the 2020 pandemic-induced market decline would cease.

Looking back at previous bear markets, none of them looked exactly like the one we are experiencing. But no two bear markets are exactly the same.

How do market returns look following bear markets?
With the S&P 500 down more than 20%, the bear market is already here. It’s a sunk cost. So, let’s look forward to what investors might expect moving forward. Analyzing eleven instances when the U.S. stock market suffered a double-digit yearly loss provides some important insights that investors should note about future returns following the worst years:

  • 1-year returns were positive 6 of 11 times while averaging just over a 6% return
  • 3-year returns were positive in all but one case during the Great Depression with an average cumulative return of 35%, or 10.5% annualized return
  • 5-year returns were positive 100% of the time with an average cumulative return of almost 80%, or 12.4% annualized return3

While the current market environment has left many investors a bit unnerved, history suggests there’s plenty of reason for long-term investors to feel hopeful when considering future market returns.

What actions should I be taking right now?
Investors would be wise to start by asking their advisor quality questions. Avoid questions that can’t be known, such as how long will this market decline last or how far will stocks fall. Instead, ask your advisor if your financial plan is still on track to achieve your goals? Ask if market declines like this one are factored into the plan that was created for you? Depending on your goals, ask your advisor if you have the right investments in your portfolio to keep pace or outpace inflation? By asking these quality questions about your financial plan, investors focus on what they can control, which is a key to creating quality outcomes.

Given the market volatility, another area of control for investors is the balance of their portfolios. Spend time strategizing with your advisor to make sure you own the right allocation of stocks and bonds aligned to your comfort with risk and the milestones you have set for your investment portfolio.

The solid returns following the worst years ever for the U.S. Stock Market should serve as a good reminder for long-term investors with cash on the sidelines to consider a plan that puts their money to work.

What actions should I avoid right now?
In times of turmoil, humans have a tendency to trade in their plans for panic. That’s why when America was first sending astronauts to space, the primary skill they were trained on was the art of not panicking. Panic causes people to ignore rules, make mistakes, and deviate from well-crafted plans.

Investors could learn a lesson or two from astronauts.

  • First: Trust your plan. Your advisor has worked with you to develop a financial plan that is well-constructed and meticulously developed to help you achieve your goals over time. Even so, during times of market chaos, it’s hard to ignore that tingling feeling urging us to throw it all out the window. It’s why Warren Buffett once said, “investing is simple but not easy.” It’s not easy because it takes discipline. Disciplined investors have been rewarded time and again by staying the course with their plans after market declines.
  • Second: Remain calm. Investors should stay focused on what they can influence, not worry about what they can’t control. Investment advisor Charley Ellis makes this point clear: “Forecasting the future of any variable is difficult, forecasting the interacting futures of many changing variables is more difficult, and estimating how other expert investors will interpret such complex changes is extraordinarily difficult.” Often, understanding what you don’t (or can’t) know is more valuable than what you do know.

Investors should be wary of anyone predicting when this market slide will end or when some of the current market factors such as war and high inflation will subside. These are unknowns that simply can’t be answered in the present.

How do I navigate this market decline?
While the current market storm has left investors understandably unsettled, we’d encourage long-term investors to remember that we’ve been through these types of worrisome markets before. While no one likes the recent volatility, it is the tradeoff investors make for returns over time that far exceed cash.

During past steep market declines, we’ve helped our clients successfully navigate these unchartered waters by focusing on what they can control, avoiding panic, asking quality questions, and sticking to their plans. Speaking of quality questions, what do lower stock prices mean for long-term investors? It means higher future expected returns. That’s a quality answer investors should appreciate.

Now is a good time to reach out to your financial advisor for a meaningful quality question and answer session.

 

Sources: 1 https://tradingeconomics.com, 2 Factset, 3 awealthofcommonsense.com, Mosaic calculations

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.

The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such.

Past performance shown is not indicative of future results, which could differ substantially. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss, and the reinvestment of dividends and other income. You cannot invest directly in an Index.

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.

Learning to Dance in the Rain

It’s been said that April showers bring May flowers. Despite having turned the calendar to May, given the recent volatility in equity markets, it feels like it’s still raining – hard. More than the fact that the S&P 500 has fallen more than 10% year-to-date, it’s been the way we’ve gotten there that has made the recent market storm so unsettling.

With seven of the past twelve trading days having market movements of more than +/- 2%, it’s the size of the recent storm that has caught investors off guard. To make matters worse, five of those days saw the market fall by more than 2.5% in a single trading day.1 Add in the fact that we are experiencing the worst bond market in 40 years, causing the normal shock absorbers for investors to feel as if they’re adding fuel to the fire rather than serving as brakes on exposure.

This recent market turmoil is certainly causing stomachs to churn, especially because it’s been a while since we’ve seen market storms of this magnitude.

A DROUGHT OF MARKET VOLATILITY
The human tendency to favor or place greater importance on recent events over historic ones – known as recency or memory bias – can’t be understated when considering investor sentiment regarding the recent market storms. That is, we all tend to forget experiences of the past compared to more recent events.

Candidly, we haven’t seen any market storms recently. In a given year, the market averages about three 5% pullbacks and one 10% correction. In 2021 there wasn’t a single 10% correction and only one pullback of just 5.2%. For further perspective, last year’s 5.2% drawdown was the second smallest annual drawdown since 1995.2

Before the correction we experienced in March this year, the market’s last correction was at the onset of the pandemic in March 2020. That’s two full years between market corrections. And yet The VIX index, a volatility tracker that investors refer to as the “fear gauge” of the market, touched its highest level of fear since the height of uncertainty during the pandemic in 2020.

MORE NORMAL THAN IT FEELS
For most investors, the recent market volatility feels anything but normal given the long drought coming into 2022. Despite that feeling, investors would be advised to view the recent storms through a larger lens. On average since 1980, the stock market has suffered an intra-year decline each year of 14% – a number that often catches investors by surprise given long-term average equity returns of 8-10% per year.3 This year the S&P has suffered a 15% decline, in line with the market’s long-term average intra-year drawdown.

Historically, the stock market has had a positive return three out of every four years. The last three years have demonstrated that, with positive average returns of 26% per year. So, while we may be due for a down year, investors should remember the market drawdown to date happens every year on average at some point.

Keep in mind that the market faces a wall of worry to climb over every year with issues that stir investor anxiety. In 2022 those worries include elevated inflation, rising interest rates, the Fed’s actions, and the Russia/Ukraine war. Take hope in the fact that over the last three years we’ve climbed over other worries including tariffs and trade wars, a century-worst pandemic and economic shutdown, a polarizing U.S. presidential election, and inflation worries, and still saw average returns of 26% per year.4

WAITING FOR MAY FLOWERS
As investors wait for the storm to subside, they shouldn’t lose sight of the positive market landscape that remains. Corporate earnings are expected to grow by 9% this year, in line with long-term market averages. Interest rates have moved abruptly higher in 2022 but remain below long-term averages. Job openings remain near record highs, signaling economic optimism from businesses. And consumers, who make up about 70% of U.S. GDP, are in a strong financial position with unemployment levels near pre-pandemic lows, household debt as a percentage of income at a 40-year low, and wage growth well above long-term averages.

Periods of market volatility can serve as a good reminder for investors to review their risk tolerance and the balance of stocks and bonds in their portfolios. Except for a few months in 2020, the market has been on a general upward climb since the depths of the Great Financial crisis in 2009. This trend of market success can cause all of us as investors to forget our real tolerance or comfort with market risk, making market declines even more painful.

Last year many investors expressed concern over putting new money to work as the market was hovering around all-time highs. With the market roughly 15% below its peak, now could be an opportune time in the middle of the market storm for long-term investors with money to invest. As Warren Buffett said, “Be fearful when others are greedy, and greedy when others are fearful.” Given the recent market storms, maybe his quote should have been about learning to dance in the rain.

Sources:
1 www.investing.com
2 https://awealthofcommonsense.com/2022/01/this-is-normal/
3 J.P. Morgan Guide to the Markets
4 Morningstar

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.

_______________________________________

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 The Shiny Gloss of Cryptocurrency: What Investors Need To Know

Bitcoin. NFTs. Blockchain. There’s a new vocabulary taking center stage recently, all revolving around a new digital currency system called cryptocurrency. Barely a decade old, this decentralized digital currency has moved from dark web discussion threads to mainstream conversations. It has the full attention of institutions and investors alike, making this the right time to get up to speed on what all the commotion is about.

THE BIRTH OF DIGITAL CURRENCIES
The idea was to devise a system that would allow individuals to hold, send, and receive value-holding items without a trusted intermediary such as a bank or payment processor in the middle. The concept came to life thirteen years ago when a cryptography-based system called blockchain was developed that enabled the creation of digital or virtual currencies secured by encryption techniques that control the creation of monetary units and verify the transfer of funds. Bitcoin was the first digital currency, or medium of exchange, that now makes up the broader cryptocurrency universe. A Bitcoin has no physical presence. It is a string of numbers and letters called a hash that indicates the value you now hold, recorded on a global network of computers called a blockchain.

The cryptography-based blockchain network, which is a distributed ledger (think of it as a massive spreadsheet), is the backbone of digital currencies. It enables the recording of information using a chain of complex, decentralized data blocks, that makes it difficult or nearly impossible to change, hack, or cheat, while still being accessible worldwide to anyone. The ledger is not controlled by any singular institution or government entity, offering ownership guarantees that previously didn’t exist in the digital world.

Bitcoin is the first and largest cryptocurrency, although thousands of different cryptocurrencies have since been created. The value of all available bitcoins is roughly $750 billion while the global crypto market cap is just under $2 trillion. As a market leader, Bitcoin is often used as a benchmark when evaluating the impact of all cryptocurrencies.

SHOULD BITCOIN BE CONSIDERED A CURRENCY?
One of the key components of a currency is that it serves as a store of value, essentially making it an asset or commodity that can be saved, retrieved, and exchanged in the future without deteriorating in value. Bitcoin can certainly be saved and retrieved but even its biggest advocates are not confident in its ability to be exchanged in the future without risk of its value deteriorating significantly. History has demonstrated this volatility.

In November 2021 Bitcoin reached an all-time high above $67,000. Less than 3 months later, its value plummeted to $35,000, a decline of nearly 50%. This significant volatility wasn’t a one-time occurrence. Bitcoin has experienced at least six different drawdowns of more than 70% since its inception in 2009. Can you imagine being paid by your employer in November and three months later the compensation you received only allowing you to buy half of the goods it could three months prior?

By contrast, the U.S. dollar has tremendous credibility globally as a trusted currency for commerce because the value of what it can purchase on any given day changes very little over time, even in other countries.

Beyond its volatility, it’s important to realize as well that any expenditure or sale of Bitcoin or any cryptocurrency holdings triggers a tax bill. The IRS considers cryptocurrency to be property for tax purposes, which means your virtual currency is subject to capital gains taxes in the same way as any other assets you own, like stocks or gold. So, if Bitcoin holders were to purchase groceries or new clothes with their holdings, not only would they pay sales tax, but they’d also be subject to capital gains tax on the Bitcoin used for their consumption.

WHY IS THERE SO MUCH INTEREST IN CRYPTOCURRENCIES?
For much of the past decade, Bitcoin garnered great interest due in large part to a belief that it could eventually replace traditional currencies. One of its strongest attributes is that the number of available bitcoins is fixed at 21 million digital coins. This hard cap was designed into the algorithm in its source code by Bitcoin creator Satoshi Nakamoto in order to ensure Bitcoins became a scarce commodity, with the hope that this will increase their value in the future. All cryptocurrencies have similar hard caps. Unlike a traditional currency where a government can simply decide to print more dollars and put them into circulation, the total number of Bitcoins cannot be manipulated by any individual, business, or government. The vast majority of even the most ardent crypto fans now agree that replacing traditional currency is unlikely due to the fixed limits and the volatility they represent.

Another great interest driver in Bitcoin is a desire to invest in the future impact of blockchain technology. By owning Bitcoin or other cryptocurrencies, the belief is you can gain exposure to an emerging technology that could change the way the world transfers money. But this thesis is wobbly at best given that blockchain technology has many more use cases than just currency. It can also be used to record emails, contracts, land titles, bond trades, or any type of contract between two parties, which opens up the possibility of peer-to-peer financial products, such as loans or decentralized savings and checking accounts. Even with all this versatility though, this new technology is still far behind existing payment processing systems that are globally used. Keep in mind that the number of payments cryptocurrencies can process per second is less than 1% compared to that of Mastercard or Visa.

Finally, some investors view Bitcoin and other cryptocurrencies as a commodity, or sort of “digital gold” that can be useful as a hedge against inflation or doomsday scenarios. Keep in mind though that although crypto does have some similarities to commodities, in the sense that its value is determined by supply and demand in the marketplace, it is limited by its strictly digital nature. Gold, for example, is a physical raw material that has many use cases from a societal standpoint.

DOES BITCOIN HELP PORTFOLIO DIVERSIFICATION?
Looking at bitcoin’s admittedly short track record of historical returns, its performance has exhibited a low correlation to other asset classes. This low correlation shouldn’t be all that surprising when considering the fundamental factors that drive Bitcoin’s price (i.e. – market adoption, supply shocks, network security, liquidity) are very different than those which drive stocks (i.e. – corporate profits, economic growth, interest rates).

The challenge for investors is how Bitcoin’s low correlation didn’t perk up when they needed it most. In early 2020, the S&P 500 fell by 33% during the onset of the global pandemic. During that same timeframe, Bitcoin fell 37%. Meanwhile, intermediate core bonds lost only 3%, outperforming stocks and Bitcoin by 30%, and reminding investors why bonds have proven to be a great time-tested diversifier of equity risk.

In their whitepaper, Hougan and Lawant illustrate that despite its extreme volatility, a small allocation to Bitcoin would have enhanced the absolute and risk-adjusted returns of a traditional portfolio of 60% equities and 40% bonds since its inception. But investors should note that portfolio benefit is due to Bitcoin’s meteoric rise from a value of $0.05 in 2010 to above $35,000 in just over ten years. Over the past 11 years, Bitcoin has seen a 100%+ return in six of those years. Should investors feel safe to assume similar types of returns moving forward, especially for an asset that unlike a stock or real estate is incapable of generating cash flows? It feels like a dangerous assumption. At the same time, given it remains in the early stages of this technology, Bitcoin’s extreme price volatility is likely to persist in the future.

IF YOU CHOOSE TO OWN CRYPTOCURRENCY, RIGHT-SIZE YOUR BET
Given the infancy of the cryptocurrency sector and its inherent volatility, investors would be well served to view Bitcoin and its crypto peers within the framework of a highly speculative investment and invest accordingly. The market cap of the global stock and bond markets is over $200 trillion. The value of all cryptocurrencies is just under $2 trillion. From an asset allocation perspective, investors who desire to own crypto should consider a portfolio allocation of 1% or less ($2 trillion divided by $200+ trillion).

Before making any investment decision, investors should consider the inherent risks. Don’t ignore the volatility of Bitcoin and your ability to stay invested during its wild market swings. It’s lost nearly half of its value since November and lost 70% of its value six times in its 13-year history. If you can’t stay invested during these deep drawdowns, the potential returns won’t matter.

Beyond its volatility, the risks to owning Bitcoin include the market share impact of other cryptocurrencies, governmental regulation, outright bans of cryptocurrency by countries such as China, the introduction of digital currencies by sovereign nations, new technology, and innovation, to name a few.

Bitcoin’s performance over the past decade has been a homerun for its investors, but its future is unclear. Just because Bitcoin was the first cryptocurrency doesn’t mean it’s the best or the last. It lacks the historical track record of traditional assets such as stocks, bonds, gold, or art. As such, there is a chance that Bitcoin becomes worthless in much the same way flashy internet stocks such as Pets.com did during the bursting of the tech bubble two decades ago.

Most importantly, any potential investment should be considered in the context of your long-term financial plan and your tolerance for risk. If you have a well-crafted financial plan, it’s unlikely that you need a miracle homerun to make your plan succeed and achieve the financial goals you desire… but a strikeout could be quite costly. Given this backdrop, sticking to your current long-term financial plan avoids the inherent risks and volatility of the current crypto investment world. Sitting on the cryptocurrency sidelines and allowing others to take swings in their portfolio seems like a prudent decision.

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.

_______________________________________

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.

 

Skip 2022 Investment Predictions, Check Out 5 Investment Themes Instead

The start of a new year welcomes two time-tested annual rituals: New Year’s resolutions and investment predictions. Even though most people abandon their resolutions after about a month, they often put long-term faith in investment predictions. Wall Street certainly enjoys the attention they get from clients who yearn for insight into what an uncertain future holds.

I’ve recently started a new tradition each January of reading investment predictions from the previous year and comparing them to what actually happened. It’s a really enjoyable exercise for two reasons: first, despite coming from brilliant teams with abundant resources, it’s amazing to see how often these predictions are stunningly wrong. (To be fair, predicting the future is an impossible task!). And second, the wildly inaccurate predictions give my brain freedom to not seek out uncertain futures. After all, how many 2021 predictions pegged inflation at 7% for the year? Most predicted 2-3%, including the Fed. And how many predicted the S&P 500 would have a 27% return for 2021? I couldn’t find one that was even within 10% of the actual outcome.

Instead of predictions that would most certainly be wrong anyway, I thought it would be more worthwhile to share five themes for 2022 that investors should watch.

Market Returns
The S&P 500 returned 27% in 2021, roughly triple its long-term average, marking the 3rd consecutive year of strong double-digit returns by the U.S. benchmark index. Its three-year average annual return since 2019 is 24%, which is the S&P’s best three-year period since the late 1990s.1

Heading into 2022, investors would be well-served to temper their expectations around returns. With the three-year rally, market valuations are above their long-term averages. At the same time, optimism remains for the new year. The consumer makes up roughly 2/3 of the U.S. economy. With low unemployment, rising wages, lower debt levels, and higher savings rates, U.S. consumers are looking healthy and wealthy. Combine that with corporate earnings expected to grow 9% in 2022 and there’s good reason to believe that the current economic expansion can produce a 4th consecutive positive year for the S&P 500 – just don’t bet on 20+% returns in 2022.2

Inflation
After lying dormant for more than a decade, inflation was the hot topic of 2021. During the 2010s, inflation, as measured by CPI, averaged 1.8% per year.3 In 2021, inflation soared to 7%. There were a handful of factors that drove inflation higher, including soaring consumer demand, supply chain issues stemming from the pandemic, fiscal and monetary policy, rising real estate prices, and rising wages.

As investors look to 2022, inflation will likely retreat from its 2021 levels as supply chain challenges are resolved, business inventories are restocked, and consumer demand likely softens without the benefit of government stimulus checks. But rising home prices and wages are two of the stickier components of inflation, so it’s unlikely that inflation will return to its pre-pandemic levels in the near future. Investors should remember that moderate inflation is a sign of a growing, healthy economy and positive for stocks. And most importantly, over time, the best hedge against inflation is a diversified portfolio of stocks.

The Wall of Worry
It happens every year like clockwork: investors look at impending risks to the market and feel a sense of doom and gloom. In 2019, the market stared straight up at U.S./China relations, tariff and trade battles, and Brexit. In 2020, the covid pandemic and U.S. presidential elections created severe investor indigestion. Last year, high market valuations, the pandemic, and the threat of inflation churned investors’ stomachs. Despite those large walls, the S&P averaged a return of 24% over the three-year period and 2020’s worst year performance still generated an 18% return.

Each and every year the stock market faces a wall of worry it must climb. And yet, historically annual market returns have been positive 75% of the time. As we begin 2022, the market doesn’t suffer from a lack of worries: inflation, Omicron variant, the Fed’s speed of removing accommodative policy, mid-term elections, and geopolitical risks. For investors, it’s critical that they understand that this wall of worry is the norm, not the exception when investing.

Volatility
The up and down fluctuation of stocks is supposed to be the price investors pay for the opportunity to earn returns above that of a savings account at the bank. But in 2021, investors managed to have their cake and eat it too. Historically on average, the market has three pullbacks of 5% and one correction of 10% each year. In 2021, the market experienced only one pullback and didn’t have a correction. In fact, the market hasn’t experienced a 10% correction since the bear market in March 2020 at the pandemic’s onset.

Given the aforementioned wall of worries that investors face in 2022 and with volatility running well below normal levels in 2021, investors should prepare for more market volatility in 2022 by making sure they own the right balance of stocks and bonds for their risk tolerance.

The Pandemic
This time last year, many predicted that it was the beginning of the end for the Covid Pandemic with the arrival and broad distribution of vaccinations. Stocks rallied and interest rates climbed in the first quarter of 2021 on the expectation that the economic recovery would get even stronger. And then covid variants struck, putting pressure on financial markets and introducing us to vaccine booster shots.

As the world currently battles the Omicron variant, investors should be mindful that we remain entrenched in the worst pandemic in a century. The last time the U.S. economy dealt with a pandemic of this proportion, TVs, and refrigerators didn’t exist, the Model T was the car to own, and total U.S. GDP rivaled the GDP of Alaska in 2021. No one can predict how long this variant or any other unknown variants will linger and what effect it will have on global economies in 2022. Making accurate investment predictions is impossible in normal years let alone in the midst of a century-worst pandemic.

I expect these five themes to drive financial news headlines in 2022, drawing investors like a moth to a flame. But for investors desiring to achieve their long-term financial goals, it’s critical that they have a short-term memory like that of Wall Street experts making investment predictions. Speaking of predictions, I’ll give in to the seasonal temptation and leave you with just one: investors will be much more successful in staying on course with their financial goals by letting the headlines of their lives dictate any changes to their financial plan, not the headlines in the news. Here’s to a happy and healthy 2022!

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.

_______________________________________

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.

 

Source: 1 Morningstar, 2 Factset, 3 https://www.minneapolisfed.org/

Make a List and Check it Twice

As we all find ourselves in the hustle and bustle of the holiday season and buying those last few gifts, here are a few key strategies & reminders to help you maximize your finances before we close out 2021.

  1. Stocks or cash make great stocking stuffers. Stop racking your brain trying to find the right gift for that hard to shop for person in your life. Consider making a gift of stock or cash from your portfolio. Remember that you may give any person up to $15,000 a year without having to file a gift tax return ($30,000 for married couples), and you may give cash or appreciated securities. There are benefits to gifting appreciated securities to individuals who are in a lower tax bracket than you (kids and grandkids), and you will spark a legacy of investing for the next generation.
  2. Charitable giving makes the season merry. Charitable giving is a great way to have a lasting effect on the causes you are most passionate about while providing important tax benefits. You can give in several ways; writing a check, giving to your Donor Advised Fund, or gifting appreciated securities. As an additional benefit, by giving appreciated securities, you avoid paying capital gains tax on the sale of the security and also receive a tax deduction for the full fair market value of the gift.
  3. Don’t let unrealized losses become a lump of coal. 2021 was a great year for the market, but recent volatility may have created an opportunity for you to offset part of your gains with losses. Keep in mind that you can repurchase any securities you liquidate in 31 days and still realize the loss to help with your 2021 taxes. Don’t want to sit on cash for 31 days? Consider purchasing a similar security to hold during your waiting period to ensure you don’t incur a wash sale, but still, have access to that industry or sector.
  4. Make a child or grandchild’s future jolly with an educational investment account. In addition to federal tax benefits, many states offer state income tax deductions or credits for contributions to a 529 plan. Starting a plan or adding to it in time for the holidays is a great way to celebrate the season while preparing for your child or grandchild’s future K-12 private education or college. For example, in the state of Missouri, a working husband and wife can each contribute up to $8,000 and receive a state tax deduction on those dollars. For a married couple contributing $16,000 to a 529, they would save about $960 in Missouri state taxes. Keep in mind that tax benefits vary state by state.
  5. Take your Required Minimum Distribution or face the Grinch. If you have an IRA or qualified retirement plan and are 72 or older, or if you have inherited an IRA, you need to take a required minimum distribution by 12/31/21. The required distribution is based on the IRA’s 12/31/20 value and the IRS life expectancy tables. Failing to take an RMD on time can incur a hefty penalty. If you need help calculating your RMD or have questions on whether or not you have taken your distribution, make sure to talk to your advisor.

 

The holiday season should be filled with laughter, joy, and memory-making. Your wealth advisors are standing by to help make things right and wishing a Merry Christmas to all, and to all a good night.

by MISSY BROWN, CFP® CPWA®
Missy is a Principal and Senior Wealth Advisor at Mosaic Family Wealth. She oversees the firm’s retirement, estate, tax, and financial planning services. She serves high net worth families, helping them strategize and develop consensus around any situation involving a dollar sign.

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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.

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.

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.