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.

Senior Vice President Joseph Seetoo, awarded the Wealth Management – Trail Blazer Award by the San Fernando Valley Business Journal

Congratulations to Senior Vice President Joseph Seetoo, who was recently awarded the Wealth Management – Trail Blazer Award by the San Fernando Valley Business Journal. Joe’s reputation of excellence, integrity and going above-and-beyond for our clients are just a few of the many reasons why he is considered a trusted advisor by many at Morton Capital. Congratulations Joe!

JosephSeetoo_SanFerandoBusinessJournal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Disclosures:

San Fernando Valley Business Journal (“SFVBJ”) Trusted Advisors is an independent listing produced annually by the SFVBJ. The award is based on data provided by individual advisors and their firms. Only advisors who submitted information are included for consideration, and investment returns are not a component of the rankings. The award is based upon a recipient’s application and not upon any qualitative and quantitative criteria relating specifically to one’s position as an investment advisor. As such, the award is not representative of any one client’s experience. This award does not evaluate the quality of services provided to clients and is not indicative of the investment advisor’s future performance. Neither the RIA firms nor their employees pay a fee to the SFVBJ in exchange for inclusion in the Trusted Advisors awards.

Morton Capital Management has been included on the Barron’s Top 100 Independent Financial Advisors rankings from 2007-2008 and 2010-2016. Morton Capital was not included in the Barron’s rankings in 2009 and 2017. Barron’s ranking is not representative of any one client’s experience and is not indicative of Morton Capital’s future performance, nor does it predict any potential investment outcomes. Morton Capital does not pay a fee to Barron’s in exchange for the rating.

 

Mid Quarter Newsletter Q2 2017

Our Legacy of Stewardship

In reflecting on Lon’s rich legacy, no part of his work was more important to him than being the trusted steward of his clients’ financial futures. Stewardship is defined as the responsible management of something entrusted to one’s care. It is a position we hold in the highest regard. Beyond our charge of helping clients with financial planning and investments, our most important role is to be a trusted partner available to you and your family for any questions or needs.

Prior to Lon’s passing, he shared with clients that he was excited to unveil the updated brand and image for Morton Capital. Over the next few months we will be completing the project we started with Lon, including the below video on our stewardship philosophy. This is one of a series of five videos and outlines how we see our role as your trusted steward.

How Is Your Financial Professional Getting Paid?

Back in 1983, when Lon founded Morton Capital, the financial investment landscape largely revolved around selling products. The more products financial professionals sold you, the more commissions (read: money) they made. Charging only a single fee based on a client’s assets under management (AUM) was extremely rare, if unheard of. However, Lon saw early on that the only way to truly align himself with clients’ best interests was to be paid for his objective advice and not based upon how many products he was able to sell to them.

Today, it is much more common for advisors to be “fee-only” as opposed to charging commissions.  The challenge with the “fee-only” title, though, is that it may not tell the full story. For instance, an advisor at a brokerage firm may not directly receive commissions, but that individual may still be incentivized to make money for the firm as opposed to their clients. Brokerage firms are notorious for making fees in a myriad of ways, and in many instances, clients can’t see these fees anywhere on their statements. In a Wall Street Journal article published in 2014, it was found that individual investors trading $100,000 in municipal bonds over the course of one month paid brokers an average “spread,” or markup, of 1.73%, or $1,730. In today’s low-interest-rate environment, this could amount to an entire year’s worth of interest. Brokers could also be getting kickbacks from mutual fund companies to recommend their funds to clients. Again, these incentives don’t show up anywhere on client statements, but the concern is that those funds were selected based on the broker’s compensation rather than solely on their appropriateness for clients.

It’s essential to understand how financial professionals are paid in order to find out what factors could be guiding their decision-making. At Morton, we don’t get paid incentives for recommending any of our investments to you. Paramount to our process is getting to know you and your needs and goals first, then making recommendations based solely on what we believe is best for you. Just as Lon envisioned when he decided to create an advisory firm all those years ago, this approach puts the focus back where it belongs: on the best interests of the client.

ETFs and the Illusion of Diversification

With the recent proliferation of ETFs (exchange-traded funds, or vehicles that track indices or a basket of assets), investors are better able to get instant diversification and cost effectively purchase hundreds of stocks in one fell swoop. However, as ETFs have grown as a percentage of total stock market ownership, an unexpected result has emerged; namely, a positive feedback loop has developed as individual stocks now move up and down in lockstep fashion. This makes sense-when you buy an ETF that tracks the S&P 500, you are effectively purchasing all 500 stocks in the S&P index instantaneously, pushing all of their prices up at the same time. Similarly, when you sell that ETF, you are selling all 500 stocks simultaneously, pushing all stock prices down. No surprise that the correlation amongst stocks has moved up meaningfully in recent years. Just when you thought you “won” the diversification game by buying that ETF, you now simply own a bunch of stocks that move up and down together. This behavior will be further exacerbated in a nasty market environment (think 2008) as investors at large will sell their ETFs at a push of a keyboard button, thereby selling thousands of individual stocks in unison.

The age-old solution to diversifying beyond stocks is to add bonds to your portfolio mix. After all, bonds typically behave well during periods of stock market volatility. However, while the last 30+ years have seen falling interest rates and rising bond prices, our concern is that the next 30 years may be a mirror image, with rising rates and poor bond performance. In future stock market dislocations, we believe bonds may not act as the ballast in the portfolio that they were in the past.

Given the heightened political uncertainty in the developed world, coupled with extremely high valuations across most asset classes, we strongly believe an alternative approach toward diversification is essential. Morton Capital is a thought leader in this realm, having taken a unique approach toward diversification for decades. Fundamentally, most traditional asset classes are exposed to three main factors: 1) valuations (we live in a world of expensive valuations); 2) GDP growth (growth around the world is stagnant); and 3) interest rates (trading at all-time historical lows). It may sound counterintuitive, but we seek (rather than avoid) risk exposure to other areas of the economy to curate a well-diversified portfolio. In other words, we crave exposure to asset classes that will behave differently than stocks and bonds in a variety of market environments. Examples include exposure to reinsurance (natural disasters), alternative lending, and gold. Additional examples, where applicable for clients who can access illiquid vehicles, are private lending, real estate, and royalty streams. While investors at large are extremely complacent, as evidenced by very low volatility levels in the global markets, complacency is one risk that we aggressively seek to avoid as we are never satisfied in our search for truly alternative sources of return.

Information contained herein is for educational purposes only and does not constitute an offer to sell or solicitation to buy any security. Some alternative investment opportunities discussed may only be available to eligible clients and involve a high degree of risk. Additionally, the fees and expenses charged on these investments may be higher than those of other investments. Any investment strategy involves the risk of loss of capital. Past performance does not guarantee future results.

Protecting Yourself Online: 7 Cybersecurity Tips

Our world is full of connected devices, everything from our computers and cellphones to our cars. This constant flow of information provides efficiency, convenience, and comfort, but along with these benefits comes increased risk. According to Forbes, cyberattacks currently account for losses of over $400 billion annually and that number is expected to skyrocket to over $2 trillion by 2019. Cyberattacks can target large corporations, as we have seen with Target, Home Depot, and JPMorgan Chase, but they can also target anyone who uses the Internet. Over half of all adults in the US suffered from a cybersecurity incident in 2016.

The amount of money lost to cybercrime has quickly surpassed that which is lost to physical theft, yet many of us do not protect ourselves from cybercrime the way we do with traditional crime. There are a variety of methods malevolent parties may use to get ahold of your personal information, which is why it is important to be vigilant when doing anything that involves your personal or financial information. Most cybercrime involves a combination of hacking and phishing. So, to protect against these attacks, you must ensure that both you and your devices are prepared.

Here are 7 steps you can take to protect yourself from cybercrime:
Read more

Joe Seetoo (Podcast) – The Realities of Selling your Business in a Zero Interest Rate Environment

Joe Seetoo is a Partner and Vice President with Morton Capital Management – a Registered Investment Advisor managing about $1.6 bn in assets under management as of June 30, 2016. As a Certified Financial Planner and Chartered Financial Analyst, Mr. Seetoo has 17 years of experience in developing investment strategies for affluent business owners and high net worth families.
Questions Answered:
1. Why is it important for business owners to do financial planning prior to selling their business?
2. Your firm has a niche in identifying alternative investment strategies – why is that?
3. How can business owners (or any investor) generate sufficient income in Zero interest rate environment after they
sell their businesses?

Disclosures:
Morton Capital Management ($1.6 billion in assets under management (“AUM”) as of June 30, 2016) is registered with the SEC under the Investment Advisers Act of 1940. SEC registration should not be interpreted to mean that Morton Capital or its personnel has been sponsored, recommended or approved, or that Morton Capital’s or its personnel’s abilities or qualifications have been passed upon, by the United States or any agency or office thereof.

The alternative investment opportunities discussed may only be available to eligible clients and involve a high degree of risk. Opportunities for withdrawal/redemption and transferability of interests/shares will be limited, so investors may not have access to capital when it is needed. Additionally, the fees and expenses charged on these investments may be higher than those of other investments.

Barron’s rankings are based on data provided by individual advisors and their firms. The ranking reflects the volume of assets overseen by the advisors and their teams, revenues generated for the firms and the quality of the advisors’ practices. Only firms that submit information are considered.

Past results are no guarantee of future results. Inherent in all investments is the possibility of a loss.

Marketplace Lending

Marketplace-LendingThe fixed income landscape has changed dramatically since the introduction of zero interest rate policies (ZIRP) by global central banks in the aftermath of the credit crisis. In an attempt to avoid a global depression, central banks in the developed countries, led by the US Federal Reserve (“Fed”), reduced short-term borrowing costs close to zero. In the graph below, we illustrate the decline in yields across the fixed income landscape for intermediate government bonds (10-year Treasury–in white), corporate bonds (Moody’s Baa–in red) and the federal funds rate (in green) since 2008.

While these central bank actions may have been justified at the onset of the credit crisis, their effectiveness has come into question over the past several years. After all, interest rates represent the cost of capital, and should ideally be set by markets where creditworthy borrowers or seekers of capital are being met by savers or suppliers of capital. Artificially low interest rates encourage the use of leverage in the economy. Also, at these historically low yields, we believe most publicly traded bonds are mispriced and investors are not being appropriately compensated for the risk they are taking. According to JPMorgan, over 60% of the global government bonds are currently carrying yields below one percent, and almost 30% carry negative yields!

Read More

Vice President, Joseph Seetoo, Interviewed in About Money – Should You Own Alternative Investments in Retirement?

About-Money---Alternative-Investments-Large

By Dana Anspach, Money Over 55 Expert
Updated March 16, 2016.

Alternative investments can offer higher yields to retirees, but they aren’t for everyone. To present both the pros and cons I reached out to Joe Seetoo, Vice President, Morton Capital Management.

Morton Capital, a registered investment advisor in California, specializes in bringing hand-picked alternative investments to their high net worth clients. They receive no compensation from the underlying investments which puts them in the perfect position to offer an objective opinion and do the research and due diligence that needs to be done before venturing into the alternative asset class world.

Read More

Boys & Girls Clubs of Greater Conejo Valley building Dedication honoring Rocky & Lon Morton

Rocky & Lon_Boys & Girls Club building Dedication_large
Recognized for their support of the Boys & Girls Clubs of Greater Conejo Valley and for their many contributions to the community, Rocky & Lon Morton were honored at a Building Dedication of the Rocky & Lon Morton Boys & Girls Club last month.
The Dedication was open to local businesses, organizations and individuals who had an interest in honoring Rocky & Lon Morton. Event highlights included building tours and dedications followed by a luncheon.
Lon Morton has been a board member for over 10 years, and has served as the Sponsorship Chair each year at the annual ‘Stand up for Kids’ Gala Dinner & Auction. He was a past recipient of the distinguished Cal Johnston Service Award and has been elected to serve as incoming Board Chairman for 2016. Rocky Morton has been involved as a community leader since 1998 serving on the Malibu Search and Rescue team for over 25 years. Her activities and leadership has resulted in helping to make the community a safer and better place to live and raise children.