Mid Quarter Newsletter March 2019

Why Cash Flow Planning Is Important for Everyone

According to a Fidelity eAdvisor study, clients who have a formal financial plan are 7 times happier than those without one. Yes, you read that right—7 times happier! But, according to Charles Schwab’s 2018 Modern Wealth Index study, only one in four Americans actually has a written financial plan. If having a formal, written financial plan could make you 7 times happier, why is it that only a quarter of Americans have one?

People may think that either they don’t have enough money for a cash flow plan or they have more than enough to retire so they don’t need to do one. However, a cash flow plan is not about how much money you have—it’s about providing you with clarity and context when it comes to your finances.

Clarity

At its heart, a financial plan is about helping you use your resources to achieve your goals. But in order to achieve your goals, you need to spend some time clearly defining what they are. Understanding what is important to you can help you make decisions about what you want to do with your money, especially if you need to prioritize your goals. Defining your goals as part of the cash flow planning process will also help your financial professional identify the possible risks to those goals and help you plan for them. The sense of organization and control that a plan can give you has an enormous impact not just on how you feel about your financial life, but about your overall life as well.

Context

Rather than making financial decisions in a vacuum, a cash flow plan provides context for those decisions. Do you need to save more in order to retire when you want to? Should you hold off on selling your business to lessen your tax bill in a high-income year? How will refinancing your mortgage affect your budget? Having a cash flow plan will allow you to see the impact of your decisions before you make them and whether there’s a better alternative that is more in line with your goals.

A plan that provides clarity and context for your financial future is something from which everyone can benefit, regardless of net worth. Going through the process of creating a cash flow plan can seem like an arduous task, but what you’re ultimately working toward is peace of mind.

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Welcome Patrice and Moriah

Patrice Bening started her career in banking at Bank of America while earning her degree in business administration and finance at California State University, Northridge. During the 10 years she spent at Bank of America, she held a variety of positions – from business banker, to relationship client manager, to branch manager, working in diverse markets across the Westside, beach communities and Conejo Valley. Patrice’s latest role was as the Vice President and Branch Manager of the Santa Monica branch for OneWest Bank, a locally based California bank. Patrice is an avid runner and hiker, and last year summited Mt. Whitney and completed her first marathon. Patrice and her husband have two boys and a mischievous border collie named Loki.

Moriah Twombley graduated with a degree in patisserie and baking from Le Cordon Bleu in 2011. After graduating, she worked in retail management before joining Morton Capital in November 2018. As an Account Servicing Associate, Moriah plays an integral role in our operations team by providing administrative support between our client service team and Morton Capital’s various custodians. She still enjoys baking for friends and family.

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FOMO and the Market

Fear of missing out, or FOMO, was the dominant theme for the first nine months of last year and has become an increasingly influential emotion in our daily lives. According to Wikipedia, FOMO is defined as “a pervasive apprehension that others might be having rewarding experiences from which one is absent.” A fear of missing out has always been a part of life, but it has become even more prevalent with the advent of technology and the emergence of social media. The impact on investment strategies has been especially pronounced. For most of 2018, we were constantly reminded how well FAANG (Facebook, Apple, Amazon, Netflix, Google) or other mega-cap growth stocks—which dominate the S&P 500 Index—were doing and why everyone needed to abandon their diversified portfolios and get more exposure to those stocks. Unfortunately, FOMO is frequently a counterproductive emotion that leads to bad decision-making, as it became apparent with the sharp drawdown in the equity markets in the fourth quarter of 2018.

Investment fads are nothing new. A look back over the past few decades can demonstrate how many of these investment strategies have come and gone. In the late 1990s, growing belief in the emergence of a “new economy” led to the rise of the information technology sector and the ensuing speculation in “dot-com” stocks. In the 2000s, much was made about the potential growth opportunities in the emerging economies and the importance of the so-called “BRIC” countries of Brazil, Russia, India, and China. The meteoric rise and subsequent crash of Bitcoin and other so-called cryptocurrencies was the most recent example of irrational FOMO behavior that punished many investors and speculators. While some of these ideas had merit at the time, over-allocating to the hottest and newest investment strategy has rarely paid off in the long run. At Morton Capital, we take a different path when evaluating new investment strategies. Rather than following the crowd, we try to stay disciplined and adhere to our three core beliefs of risk management, true diversification and cash flow. After all, if our clients can sleep peacefully at night knowing their portfolio is working towards their financial goals, while others may take unnecessary risks to participate in a hot trend, who’s really missing out?

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Important Reports for Tax Planning

It’s that time of the year again – tax planning season! To help you and your CPA get the information you need in a timely manner, we’ve created a few tax planning reports on the portal:

  • Realized Gain/Losses – for this year and last year
  • K-1 estimated timing document
  • Estimated income report (under “Transactions”)

We will upload your Schwab or Fidelity 1099 reports in mid-March as well. Please reach out to your MC wealth advisory team for any questions about our portal or to set up your CPA with their own.

 

 

Mid Quarter Newsletter June 2018

Why You Should Care About Rising Interest Rates

Recently, you’ve likely been seeing headlines that breathlessly wonder whether the Federal Reserve will increase interest rates at their next meeting. With what many consider a relatively strong economic environment and higher inflationary expectations, most agree that the Fed will raise rates at least another two times in 2018.

While there are countless ways higher rates may impact the broader economy, individuals will start to feel the impact as well. As a consumer, if you go to buy a car or use any other form of credit, higher rates will affect any loans you take out. If you have an adjustable rate mortgage (ARM), rising interest rates could cause your monthly payments to increase meaningfully.

Individual investors, especially those with more traditional allocations, will also feel the impact in their investment portfolios. Simple bond math states that interest rates and bond prices move in opposite directions. So a holder of a “risk-free” 10-year Treasury bond has lost 2.8% in value in five short months since the beginning of the year . . . not so “risk-free” after all!

Over the last several years at Morton Capital, we’ve consistently reduced our weightings to fixed income strategies that have exposure to rising interest rates, so our bond portfolios look VERY different from those of other traditional wealth managers. When investing in bonds, others point to the fact that traditional bonds have posted positive and predictable returns for decades on end. After all, what has worked in the past should work going forward, right? However, interest rates have been in a steady decline since 1981, so many investment professionals were still napping in their cribs when rates last rose and have little idea of the potential risk lurking in many bond strategies. When considering this risk to traditional bonds, we think it’s crucial to spend the time searching for alternative bond substitutes that can generate predictable returns, even in a rising rate environment. Just because we haven’t seen rising rates for 30+ years, doesn’t mean the next 30 years will look the same.

Welcome Dan and Leah

Dan Charoenrath
Director of Client Operations

As the Director of Client Operations, Dan manages our Account Servicing Team. Prior to joining Morton Capital, he spent five years managing multiple units for Peets Coffee and Tea, overseeing all locations from San Luis Obispo County through Ventura County. He earned his Bachelor of Arts degree in philosophy from the University of California, Santa Barbara, in 2004.

 

 

Leah Loewenthal
Portfolio Analyst

Leah began her career in the financial industry in 2013 after graduating from California Polytechnic State University, San Luis Obispo, with a Bachelor of Science degree in animal science. As a portfolio analyst, she provides excellent operational, administrative and client support. She enjoys traveling, being outdoors and coaching youth basketball. She holds Series 7 and Series 66 licenses.

Planning for Incapacity

If you have parents of a certain age, you’ve likely had to start having those uncomfortable conversations about how they and the rest of the family will handle their affairs as they age. At what point should they stop driving? Should they consider downsizing to a more manageable home? What are their preferences if they need help with their personal care? While thinking about these issues regarding your parents is uncomfortable enough, have you also started thinking about your own incapacity plan? No one wants to think about the day they no longer have the ability to make rational, coherent choices, but being proactive will ensure you have a say in your lifestyle even if you can no longer make day-to-day decisions.

According to the Alzheimer’s Association, Alzheimer’s accounts for most cases of dementia and affects an estimated 5.5 million people age 65 and older. Other common causes of dementia include strokes, abnormal brain chemistry, and Parkinson’s disease. Some of the warning signs of dementia include memory loss that disrupts daily life, difficulty completing familiar tasks at home or work, confusion with time or place, new problems with words in speaking or writing, and changes in mood or personality.

So how can you plan for the possibility of dementia or other incapacitating disability? Be proactive by identifying someone you trust to make decisions for you when you can’t, and to serve as a resource for your advisors and other professionals. You can use the following form to add a “trusted contact” to your Schwab or Fidelity accounts – simply complete and sign the form and return it to Morton Capital. Encourage your parents to do this as well. Take the time now to make sure you have a durable power of attorney for your financial affairs and an advance health care directive, and revisit any directives you have already to ensure they are still consistent with your wishes.

If there’s someone you would like us to contact in case you begin showing signs of incapacity, reach out to your advisory team and let us know. Introduce this person to other trusted professionals in your life as well. Unfortunately, if you don’t make your incapacity choices yourself, someone else will get to decide who will make those choices for you.