The Cordant Blog

Taking Action With Tax Planning

by Scott Gerlach, CFP on December 08, 2016

As humans, it’s in our DNA to crave action in moments of uncertainty. It’s the fight or flight instinct. Because of this, successful investing will always be counterintuitive to many and difficult for most. When it comes to long-term investing, the data and research continue to support an approach that rewards patience and discipline, not action or reaction. Fortunately, not all aspects of managing your wealth require you to resist against our ancient wiring. In fact, when it comes to tax planning, opportunities abound, in all phases of life, to grab the bull by the horns and to act.

Below we’ve provided actionable items for all 3 phases of your financial life – working, at retirement and in retirement. But, before we get into the three phases, there are a few things you can and should be doing regardless of what phase of financial life you’re in.

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The Key to Great Investing

by Isaac Presley, CFA on December 02, 2016

*This article was origionally published on the CFA Institute's Enterprising Investor blog.

 

All great investors have one thing in common: the “ability to clearly communicate their [investment] philosophy,” Michael Batnick, CFA, observed.

I agree. Whether hedge fund managers, value investors, or index aficionados, the best investment professionals are great communicators.

But great investors, no matter their investing styles, share one other quality: the discipline to adhere to their investment approach through various market cycles.

Great investing is not simply a matter of identifying The Best™ investment strategy. In the 1990s, James O’Shaughnessy documented a variety of effective strategies in What Works on Wall Street. A number of approaches work, however, the key is not so much to find them, but to apply them with consistency.

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Cheaper Doesn’t Mean Do More

by Isaac Presley, CFA on November 21, 2016

 

If more information were the answer, we'd all be billionaires with perfect abs." Derek Sivers

 

We live in a world with more information at our fingertips than previously thought possible. According to Google’s Eric Schmidt, “Every two days now we create as much information as we did from the dawn of civilization up until 2003.” And as a result, many things today are cheaper than ever before. However, in the end, this access to more and more at ever lower prices, ends up costing us more in terms of the outcomes we seek. Let me explain.

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2017 SERPLUS Enrollment [A Framework and Resources]

by Isaac Presley, CFA on November 17, 2016

For those eligible to participate in the Intel Sheltered Employee Retirement Plan Plus, more frequently referred to as SERPLUS, the annual enrollment window is now open. You must enroll in each year to participant in the plan, which for 2017 contributions must be done between Nov. 14th and Dec. 2, 2016.

Each year we get questions about how the plan works, how much to contribute and how the contributions should be invested.  We coordinate the enrollment and advise our clients each year on how to make these decisions and how to best optimize the contributions given their personal situation. But, for those eligible for SERPLUS, but not yet working with Cordant, we still can provide some assistance during the enrollment period.

Previously, we’ve written a blog post on how the plan works and the benefits and risk of participating, but here we want to outline a framework for making the decision and then conclude with a resource that may prove helpful when trying to figure out how to invest the contributions.

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Where Do We Go From Here?

by Isaac Presley, CFA on November 10, 2016

The results of Tuesday’s presidential election were surprising to many and concerning to some, but they’ve left pretty much everyone asking: where do we go from here?

In an attempt to answer this very natural question, we now have the very same pundits, prognosticators, and seers who couldn’t predict the outcome of the election lining up to tell us exactly what will happen over the next four years.

But what do we think? Honestly, our crystal ball is a little cloudy. We don’t know, and neither does anyone else; someone telling you otherwise is probably either lying or selling you something—maybe both.

If we’ve learned anything in 2016, it’s that the prediction business is not a business you want to be in as an investor. First, the “Brexit” vote which few saw coming and now, a billionaire real estate developer with no political experience, has been elected to serve as the 45th President of the United States. Heck, even the Chicago Cubs snapped a 108-year drought and won the World Series.

So, despite the lessons of this year, the desire to know the future remains. We still crave certainty. It’s why the prediction business, no matter how bad the track record, will never go away.

Let’s look at some examples of how difficult it is to predict the future, let alone make money by doing it. Then we will give our thoughts on what you should be doing now.

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What To Do With Your Company Stock: A 3-Step Plan

by Isaac Presley, CFA on November 04, 2016

Barron’s recently published an article titled ‘Does Your Company Give You Stock? Great. Sell It.’ As our clients will know, this is our default advice when it comes to company stock. Sure, it makes sense to evaluate company stock holdings in light of your unique financial situation—maybe it makes sense to hold from a tax perspective or to fund future charitable giving—but even still, it’s best to put a plan in place now. Don’t let the inertia of past decisions continue to influence your decisions today.

So, why does Barron’s (and many others) recommend selling your company stock? To quote the article, “Your financial future is already reliant on your employer’s fortunes. Don’t double down.”

Let’s review why it’s risky to concentrate wealth in your company stock and then conclude with suggestions on how you can take action today.

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Diversification: More Important Now Than Ever

by Isaac Presley, CFA on October 27, 2016

Diversification has gotten a bad rap as of late. Over the last five years, due to the strong performance of US equities, a simple 60% US Stock / 40% US Bond portfolio would have been one of the best portfolio allocations—outperforming the majority of more diversified asset mixes, especially anything including an allocation to international stocks.

Increasing correlations between asset classes are often cited by those claiming that diversification is no longer helpful. That, coupled with the US market’s recent outperformance means many are questioning the need of going beyond this simple 60/40 portfolio.

The problem with this logic, though, is that what’s worked best recently won’t necessarily work best going forward—investing isn’t that easy. For several reasons, which we are about to see, building a diversified portfolio allocation may be more important now than ever.

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The Difference Between Smart Financial Advice and Smart Financial Advice For You

by Isaac Presley, CFA on October 21, 2016

The best strategy in theory might not be the best strategy for you. How can this be?

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How Not To Evaluate Investment Performance

by Isaac Presley, CFA on October 11, 2016

Harvard’s Endowment has been making headlines recently due to its $2 billion investment loss in the fiscal year 2016. And the Crimson (the student newspaper) is up in arms about this “unacceptable” loss.

From their article The Urgency of the Present come the following gems:

Harvard Management Company announced a $2 billion loss for the fiscal year 2016.

Let’s not mince words: this is unacceptable.

Now, a $2 billion losses certainly catches attention and grabs some headlines, but it’s only a major loss in dollar terms. Because of the endowment’s size (a good thing for Harvard) it’s not a major loss in percentage terms as the paper admits:

“…help to bridge this small (in percentage terms) loss.”

The editorial continues with some advice of sorts:

“We also recognize that we are not investment advisors. College students have no business telling seasoned analysts and managers where to invest the endowment. Instead, we wish to urge the administration to prioritize endowment performance before Harvard falls further behind peer institutions.”

From my vantage point[1] this is a case study on how NOT to evaluate your investment performance. Let’s take a look at what we can learn from this example.

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How Concentrated is Too Concentrated? A Mistake That Costs You the Whole War

by Isaac Presley, CFA on October 07, 2016

During the First World War, Britain had the greatest Navy ever assembled in world history. And yet, through most of the war, it used its Naval superiority to play defense, not offense. 

Dan Carlin in his excellent podcast Hardcore History describes the situation as follows:

“The opportunity was there for the numerically superior British fleet to apply their numbers and kick German tail, but the problem was Naval outcomes were quite variable. One lucky punch could turn the tables and in this case, remove the British numeral advantage.”

He continues, quoting Winston Churchill directly:

The great disparity of the results at stake in a battle between the British and Germany navies can never be excluded from our thoughts.”

This “great disparity of the results” and the quite variable outcomes could produce a major victory, but it could also produce an unacceptable outcome. Again to quote Churchill:

“The chance of that happening [a British loss] may not be great, but if that happens, it could cost us the whole war.”

The strategy was to stay alive and play the long game—Not to make some grand, heroic strike.

You should apply a similar strategy with investing as well.

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