3 Things 10-25
10/25/2021 Although MAS is a financial services company, not everything published herein will be about numbers or investing. But no matter the topic, we hope for three things: 1) That you find the time you spend engaged worthwhile. 2) That you’ll reach out to us for help in any of our areas of expertise if something we discuss creates an urging in you to do so. 3) That you’ll share this with somebody new each time you read it. Thing One When Is Best Time To…? About 25 years ago, I caught the fishing bug after I went with a group of co-workers and customers as a part of a company outing. We fished in a small, stocked pond in South Georgia where even a novice like me could coax fish into biting virtually at will. I didn’t know at the time that the pond was stocked and, as a result, got a bit fooled by my perceived ability to catch fish. As a result, I was hooked and I wanted more fish to be hooked too. So I bought all kinds of fishing poles and lures and started fishing. And I spent many Saturday mornings educating myself by watching fishing shows. The guys on those shows were the best. They always caught big fish. I know, I know, it was T.V. and they could edit all they want, but just indulge me for the sake of the story. In the shows, they stressed the importance of having the right equipment and the right tackle. And they also talked about the science of fishing. But they talked about it in a language that was just on the other side of penetrable for me. So my stringers (that’s fishing lingo for the number of fish you catch in an outing) never looked like theirs. In my quest to match them, I asked an older guy who I knew was a fisherman (he actually looked the part, by the way) when was the best time to go fishing. Now before I give you his answer, I should say that as a part of my attempt at self-educating on fishing techniques, I’d come across various ideas related to the weather patterns, the seasons, and even the lunar cycle. I’d expected the old man to answer with some mixture of the three. Instead, he said, “whenever you can.” It was such a blunt response that I expected laughter and an elaboration. I got neither. We were at work when I asked the question and he simply answered me and walked away. He did (later) invite me to go fishing with him though, and it was on that first trip that his answer got contextualized. I think we caught one fish that day. We still had fun though. That’s was the point. The purpose of fishing for him, as he explained to me, was to have fun so he thought it would be silly to get bogged down in too much calculating in deciding when to go. If it’s fun, he reasoned, why not go whenever you can? He further explained that since 90% of the fish are typically in 10% of the water, no matter what body of water you’re talking about, it was all about knowing where to be, when. Needless to say, my stringers got bigger after my sessions with the old man. That was a longer than usual analogy to introduce the advice another old friend and mentor who taught me most of what I know about investing once gave me. I’m paraphrasing, but the essence of what he said was, “investing is about three things: being in the market, being in the right sectors, and finally being in the right stocks within the right sectors.” So, when is the best time to invest? When you have the money to invest. Yes, there are lots of things to worry about – inflation, recessions, etc., but given the meager returns on the so-called “safe” investment vehicles relative to current and trending inflation levels, if the purpose of investing is to achieve real (net of inflation) returns, you’ll have to fish where the fish are.
Thing Two Some Politicians Are Eying Your 401(k) As we all know, 401(k)s are great retirement investment vehicles. You get to set aside a percentage of your wages in an account, which you own and direct, including what to invest in. That investing freedom has enabled millions of workers to retire with small (and in some cases large) fortunes. But there is a movement underway at the highest levels of our government to give it more say-so over where your private retirement investment dollars go. Before we get into those details, it’s worth a reminder that, through the social security trust fund, the government “invests”, for each of us, 12.4% of our income via FICA taxes (6.2% from us and 6.2% from our employer or all 12.4% in self-employment taxes) but limits the return on that investment. In other words, there is a maximum monthly benefit you will get from social security regardless of how much money you have put in and how well the market has done. And when you die, there is no leftover money from your account to pass on to your heirs. If given a choice between putting 12.4% of their salaries in a government-run trust fund, where the returns are capped and there is no individual account ownership or investing it on their own, with or without professional help, and taking their chances, which do you think would be the most popular choice for individuals? I say it’s likely that more than a few would choose the latter and the government would do well to leave retirement investing to retirees and their chosen advisors. Yet there was news this week that government officials are drafting rules that would force companies to direct 401(k) flows to politically favored ESG (Environmental, Social, and Governance) funds as a default. See the excerpt below from the Wall Street Journal for more detail: “…An important Trump Labor rule last fall reinforced that the Employee Retirement Income Security Act (Erisa) requires retirement plan fiduciaries to act “solely in the interest” of participants. The rule prevented pension plans and asset managers from considering ESG factors like climate, workforce diversity and political donations unless they had a “material effect on the return and risk of an investment.” The rule effectively barred plans from placing workers who don’t select a 401(k) fund option into a default ESG fund. The Biden DOL plans to scrap the Trump rule while putting retirement sponsors and asset managers on notice that they have a fiduciary duty to include ESG in investment decisions. The proposed rule “makes clear that climate change and other ESG factors are often material” and thus in many instances should be considered “in the assessment of investment risks and returns.” A fiduciary’s duty may “often require an evaluation of the effect of climate change and/or government policy changes” such as electric vehicle mandates on an investment, the rule-making says. Retirement plan sponsors won’t merely be allowed to prioritize climate and social factors in how they invest. They could be sued if they don’t. Workers won’t get much say because plans won’t be required “to solicit preferences” on ESG…” It turns out that it’s not enough that you have no say in how your social security funds are invested, the government now wants a hand in how you invest your retirement funds. This is all the more reason to seek out a real fiduciary, rather than a sound-bite-driven one, to help plan and manage your retirement assets.
Thing Three Just A Thought “There is no right way to do a wrong thing.” - Seneca