Tag Archive for: Strategy

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.

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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.

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. 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.