NWP Monthly Digest | December 2019
We hope you were able to take some time off last week to think about what you have in your life to be thankful for while you enjoyed some time with your family, food with your friends, and discounted shopping on Friday. It is easy to not appreciate the small things in life and take things for granted. Being grateful for what you have may lead to a more fulfilling life and a greater sense of joy. At Noble Wealth Partners, we are grateful for each and every one of our clients for making our job special and rewarding. Our clients are the reason we truly love what we do and we are thankful for every opportunity we have to add value to our clients’ lives. We hope you enjoy the rest of your holidays and wish you a happy New Year!
Grabbing the headlines
Last week, the media unveiled their holiday spirit, stuffing more into the headlines than our plates could handle. Impeachment hearings, the world’s biggest post-war heist, a plethora of mergers including two of the largest brokers in the financial industry.
Dozens of items were stolen last week from an 18th century collection in the biggest post-war heist ever. I had an image of one of the Mission Impossible films in my head before I saw the surveillance tapes showing one of the thieves taking an ax to the display case. Tom Cruise is lucky this heist occurred after Rotten Tomatoes reviewed Fallout. Read more here.
On November 21, 2019, CNBC and Fox Business both broke the news that the largest U.S. brokerage, Charles Schwab Corp., formally announced their intention to pursue an acquisition of the second largest U.S. brokerage, TD Ameritrade Holdings (the custodian of Noble Wealth Partners), for $26 billion creating a $5 trillion behemoth. We are assessing any potential implications for our clients as information is disseminated.
How is your portfolio positioned?
Many investors have grown complacent relying on the likes of Microsoft, Apple, and Amazon to drive the entire market. However, inexpensive stocks, known as Value stocks, are selling at prices not seen in over ten years. Unfortunately, value alone is not usually a catalyst for a reversal of the prevailing trend. That said, do not be surprised to see these inexpensive stocks charge past popular technology names.
“The only time in history that Value has gotten this cheap was in 2003 and 2008, when Value outperformed Momentum by 22% and 69%, respectively, over the subsequent 12 months.” Barry Ritholtz
The chart above the relative attractiveness of Value stocks when compared to Momentum stocks (those stocks that have performed well recently). If the blue line is near the orange bar at the top, Value stocks are considered expensive. If the blue line is near the orange bar at the bottom, Value stocks are considered cheap. As you can see, Value stocks (by this measure) have not been this cheap in over ten years.
Still plenty of things to worry about in 2020
Skip this section if you are an anxious person. If you sleep like an Opossum, feel free to continue reading. Now that Thanksgiving is behind us, turkeys across the country discovered what their eventual fate would be. But how would they know before then? All year, farmers had been treating each turkey like a god up until their demise. Stock markets often follow a similar pattern. Providing healthy returns to investors up until the point it is too late. Recently, the stock market has once again risen to new highs. Over the past ten years, the markets have been fed a gluttonous portion of low interest rates, quantitative easing from central banks, and yield-hungry investors chasing returns. Analogous to the turkey, life for investors may seem great but the risks have not gone away. At Noble Wealth Partners, we do not think the end of this expansion is right around the corner but we feel it is important for our clients to understand potential risks in the later innings of this bull market. For those not sure what to worry about, you can thank Deutsche Bank for being kind enough to put a list together.
Our Noble Wealth pro tips for December
Group benefits
The enrollment period is coming to a close. For those covered by group benefits, read through your benefit package to make sure you are taking advantage of all the perks your company offers. Remember, these benefits are factored into your compensation so you should be using them.
Roth Accounts
Before the end of the year, you should also consider the potential advantages of Roth conversions from any pre-tax retirement accounts you may have. The Tax Cuts and Jobs Act (TCJA) has given many individuals a window of opportunity to take advantage of these Roth conversions until the reform sunsets in 2026. Some individuals can also use this time to make Backdoor Roth contributions. If you have not already, talk to your advisor about these topics before the end of the year.
Hire an investment adviser
The percentages next to the titles show the percentage of respondents that selected each title. The correct responses are highlighted in green. Click on this picture to view the full version of this article.
Just last week I was catching up on some reading from the third quarter edition of the Financial Analysts Journal by the CFA Institute when I came across an article called, “Brokers or Investment Advisers? The US Public Perception.” This caught my eye as it was pertinent to my profession and I was curious what knowledge the general public had on the matter. The author interviewed 460 subjects (narrowed down from 994) about their understanding of the investment industry. I was stunned when I saw the results to the survey. To begin, 55% thought those with the title of “financial advisor” and 51% of the title of “broker” had to legally act in your best interest. Only 34% thought investment adviser representatives had to act in your best interest. The correct answers - 100% of “investment advisers” and “investment adviser representatives” are legally required to act in your best interest (there is a subtle distinction between the two titles above - “investment adviser” is a title given to the firm where the individuals at the firm are “investment adviser representatives”). In the second portion of the survey, over one in every three respondents did not know the titles of the individuals that are in the business of selling investment and financial products to them. And who can blame them? The nuances between titles in our profession can be headache. Inspired by The Game of Thrones, at one point I chose to use the title “Master of Coin,” which is a good case in point. Is a “Master of Coin” legally held to a fiduciary standard? Nobody knows.
If you are working with a Certified Financial Planner, they are all required to act in as a fiduciary. But what happens if they don’t? According the CFP Board’s website:
“CFP Board's public disciplinary action can take one of three forms — a public Letter of Admonition, a temporary suspension of the individual's CFP® certification or a permanent revocation of the individual's CFP® certification — depending on the severity of the breach, any mitigating or aggravating circumstances, and the individual's cooperation with the Board's investigation.”
Now, if a financial advisor did not act in your best interest and you can no longer retire, would you feel indemnified knowing that individuals lost their ability to use the CFP® certification? Personally, that would not matter to me. I would want my money back. Hence, the reason you should work with a firm that is legally held to a fiduciary standard.
Noble Wealth Partners is an “investment adviser” registered in the state of Colorado. We are legally required to act in your best interest and we are bound to a “fiduciary standard.” To eliminate any ambiguity, Noble Wealth Partners took the additional step of adding our fiduciary oaths to our website and available to the general public here. Our firm believes radical transparency is paramount in building an enduring relationship with our clients - problem solved!
Things we’re reading and enjoying
The Economists Hour: False Prophets, Free Markets, and the Fracture of Society by Binyamin Applebaum - in this "lively and entertaining" (Liaquat Ahamed, The New Yorker) history of ideas, the New York Times’ Appelbaum tells the story of the people who sparked four decades of economic revolution.
What we’ve been up to
A lot has happened in November we digested presentations on estate planning, charitable gifting, the changing investment landscape, and investment themes for 2020. As usual, Grant and Jeff continue to be busy in the community as financial professionals and volunteers. Click on the button below to check it all out.
Worried about the cost of college?
Jeff hosted a live webinar on the cost of college and how to prepare your family finances for this expense. If you have questions or concerns on how your going to pay for your kid's college, how the FAFSA and the student financial aid process works, or if you are just plain curious how this all comes together, then spend some time educating yourself on the cost of higher education by listening to the replay below.
Stay warm,
Noble Wealth Partners