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MC Stories – Liquid vs. Illiquid Investments – What’s the Difference?

We all know that having the right types of investments in your portfolio is critical to achieving your goals. But did you know that you can’t create a successful mix of investments without first knowing what you need each asset to do for you? It’s like trying to pack for a vacation without knowing your destination. Get unlucky and you might be unpacking flip-flops when there’s a foot of snow outside. The same principle applies to your financial success—not knowing your desired destination (aka your financial goals) can hinder your investment selection and overall performance.

In addition to knowing your destination, an important ingredient when it comes to your investment mix is understanding the liquidity or illiquidity of a particular asset. Liquid investments are holdings that can readily be converted into cash with a certain level of price stability and include such assets as cash, money market funds, Treasury bills, and bonds. Illiquid investments are assets that are not easily sold or exchanged for cash, often referred to as “private placements”. If forced to sell before the end of any holding, or lock-up, period, these illiquid assets may suffer a substantial loss in value due to their limited marketability and/or greater price volatility.

So, assuming you know where you’re headed on your vacation (your financial goals) and you’re preparing to pack your bags for this trip (creating the appropriate mix of investments in your portfolio), my question for you is this: what do you carry on to the plane versus check down below?

When organizing your carry-on, you know the contents will be easily available and accessible to you throughout your journey. Usually this includes some snacks, a book or laptop, and, of course, your wallet (so you can buy more snacks if you run out). Even if you don’t do anything with these items during the flight, you’re able to relax knowing they’re within arm’s reach in case you do need them. That accessibility mimics that of your liquid investments. You want these funds to be quickly available to you to help manage any expenses that come up as you make your way towards reaching your financial goals. Liquid holdings serve a specific and important purpose in your portfolio and may need a place in your investment mix, just as your carry-on has a place on the plane (tucked under the seat in front of you).

Unlike your carry-on, the items you choose to put in your checked bag are not easily accessible to you during your journey. While we all get a little nervous watching our luggage disappear into the darkness of the conveyer belt, we also know that at our final destination the items in our bag will maximize our vacation experience. We didn’t have to limit ourselves to a three-ounce shampoo bottle or have to choose between two pairs of shoes. This checked bag will provide us with both the variety and volume that our carry-on can’t. This inaccessibility is typical of the illiquid investments in your portfolio. Locking up your money can also be nerve-wracking, but just like your checked bag provides benefits over your carry-on, illiquid assets can also be beneficial as part of your portfolio when appropriate: higher targeted returns to compensate you for that lack of accessibility, predictable cash flow compared to publicly traded assets, and lower relative volatility due to the lack of daily pricing.

As you can see, both liquid and illiquid investments can serve specific purposes in a portfolio. Some travelers may choose to only bring a carry-on. They understand the limitations of their decision but believe the convenience of access outweighs the benefits of delayed gratification. Other travelers may always choose to check their luggage, knowing they prefer to be greeted with a larger bag (with more to choose from) upon their arrival. But once you know what you need your assets to do for you, you’re better able to prepare so that you can both enjoy your journey towards achieving your financial goals and maximize your success once you do reach your final destination.

 

Disclosures:

This information is presented for educational purposes only and is not intended to constitute investment advice.  Morton Capital makes no representation that the strategies described are suitable or appropriate for any person. Investments in illiquid assets are available only to eligible clients and can only be made after review and completion of the applicable offering documents. Illiquid investments involve a high degree of risk, including the loss of capital. You should consult with your financial advisor to thoroughly review all information and consider all ramifications before implementing any transactions and/or strategies concerning your finances.

MC Stories – Identifying Your Relationship With Money

We all have a unique relationship with money. Usually, this association is deep-rooted and developed over time starting from early childhood. Money Scripts are identified as the unconscious beliefs we have about money, often partial-truths, and sometimes they are passed down from generation to generation. Our money scripts tend to correlate certain statistics, such as income, net worth, debt levels, certain financial behaviors, and decision-making processes. Identifying your money script will even provide insights into your current financial health.

There are four core money beliefs (scripts): Money Avoidance, Money Worship, Money Status, and Money Vigilance. You might not just be one of the four, you might be a hybrid of two or three, with dominant characteristics of one. You might even have two money scripts that contradict or be a member of a household where everyone has a different one!

This quick and easy quiz below will get you on your way to observing and identifying yours – plus you can also download and print the quiz here. Once you’ve narrowed down your specific money script, challenge your friends and family to identify theirs as well. Light bulbs might go off on why opposing money scripts tend to make different financial decisions, have different emotions or reactions to events, and how they respond to financial matters entirely!

Now that you’ve sourced your money script, how can you use this newfound knowledge to your advantage? That’s right, being able to identify your money script is not only a powerful (and fun) activity but will also provide you with an awareness that allows room for change if necessary. The adage “Once you can name it, you can tame it” rings true here.


To the high scoring Turtles (9+ points), you are considered a Money Avoider. Deep down you may believe that all money is bad and that you do not deserve to have it. Ignoring your finances and avoiding thinking about money comes naturally to you. Sometimes you may even give money away or sabotage your financial situation in an unconscious effort to not have any money to manage. You may believe that wealthy people are greedy and corrupt and there is something to be said about living with less money, living more simply.

Having this negative association with money and wealth leads to ignoring financial statements that arrive in the mail, overspending, enabling others financially, or finding difficulty in creating or managing an expense budget. Those individuals in the helping professions, such as social workers and psychologists, tend to score higher in this area than those in other professions, such as business or financial advising.

Money avoidance can have a negative impact on your financial health. Below are some tips that can assist you in challenging and changing these beliefs:

  1. Automate your savings plan – creating a schedule where automatic monthly transfers take place into your savings account (without you having to direct it every time) will eliminate you sabotaging or preventing your savings strategy. Include IRA, 401k and other Qualified Accounts in this process – auto transfers or auto contributions will work miracles for you.
  2. Create a quarterly recurring calendar meeting where you sit down to review your financial statements, speak with your advisor, your partner/spouse, and evaluate your financial situation as well as budget. This way, you can’t avoid it completely knowing that you have a firm set date and time to have these conversations.
  3. Re-assess what money can do – how it can be good. Make a list of how money could help you, others, charities, non-profits, donations, philanthropic projects. Recognize how money can be beneficial if put to good use.

To the high scoring Bumblebees (9+ points), you are considered a Money Worshiper. We get it, we live in a society that worships money – how are we supposed to set ourselves apart when money worship is commonplace? The behaviors that stem from money worship may be toxic or destructive, but our society supports and even rewards this type of behavior. You may even believe that more money will solve all of your problems. What’s interesting is that although you think there is never such a thing as “too much money”, putting work ahead of family in the pursuit of money never quite satisfies or fulfills you.

You are more likely to overspend on yourself or others, have a lower net worth, and carry high debts. You find yourself making purchases in the pursuit of happiness. Going against societal norms has its challenges but paying attention to real moments of experienced happiness will help detach this mindset. Notice the distance and lack of correlation that happiness has to our level of income, net worth, and total possessions.

Money worship can have a negative impact on your financial health. Here are some tips to help challenge this mentality:

  1. What is important to you? Sometimes we forget why we are chasing money. Achieving wealth can quickly lose its glamour unless we attach it to our values. What are your plans with that money? Challenge yourself by asking yourself why. For example, I want more money to go on vacations. Why? To spend time with my family. Why? So we can have experiences together and create memories. If you scrape away the stuff, you can see what is important to you. What really matters doesn’t cost a thing! When we keep our priorities straight, it can help us maintain a healthy work-life balance and make sure to connect with loved ones throughout our day/week/life. After all, your relationships are more likely to bring you happiness than money in and of itself ever will.
  2. Eliminate Buyer’s Remorse! Who doesn’t like buying a new toy? It can be thrilling to make a new purchase, especially so if it was an impulse one. Often, that excitement dwindles away, and you regret the purchase. If you experience this, practice pausing between the idea of the purchase and the actual purchase. Come back later. Think if over. Evaluate the purpose and intention of the purchase. Does this purchase align with my values, beliefs, and family’s needs? Creating space allows your financial decisions to live in a more rational place, maintain its initial desire, and stop making you feel bad when the whole point was to make you happy.
  3. Give back. Support a charity, donate, or volunteer your time. How do you feel? Notice the impact. Did you feel better giving books to children in need or buying yourself something? You will surprise yourself! Make sure you budget the time and space for your giving initiatives and explore different ways to support others, beyond giving them money. Your time will be just as valuable to those in need (if not more).

To the high scoring Peacocks (9+ points), you are considered a Money Status Seeker.

You tend to link your self-worth with your net worth. You are driven to earn more money than your peers and taking risks to make money quickly plus the desire to buy expensive things is in your nature. Outward displays of wealth are important to you – and as a result, overspending is a recurring obstacle you face. You are more likely to gamble excessively, become financially dependent on others, or hide financial matters from your partner/spouse.

Sometimes you think that if you live a virtuous life, the universe will take care of you (financially speaking). Growing up, you may have experienced lower socioeconomic environments or were surrounded by a household that prioritized social status through displays of wealth. It is clear we live in a society that associates financial status with social standing. That being said, it is normal to be attracted to money and desire to be financially successful. Although these feelings are normal, if not identified and tamed this mindset can be damaging.

Here are some tips to keep your money status mindset from becoming toxic to your financial health:

  1. Create a budget and involve your family/advisor. The point of this exercise is to create accountability and get your financial situation in order. You want to make smart purchases, be intentional with your spending, and pay attention to how, when, and why you are spending. Your budget should not feel like constraints but instead, empower you to make the right decisions in your spending behavior.
  2. Work-life balance. You are constantly striving for financial success. In this pursuit, you may find that your work and life is not balanced. Take the time to dedicate hours to your family and loved ones, create connections that are separate from the strive to make money. Be aware of workaholism, this can have a negative impact on relationships as well as your own wellbeing. All the money in the world can’t buy you loving relationships or sanity. Create the balance.
  3. Challenge WHY before making purchases. Money status personalities tend to make purchases for the wrong reasons. Is the purchase filling a need? Or is the purchase a desire? Is the desire for myself, or for others? Recognizing the reasoning behind your financial decision making can shed light on this personality trait being present. Is the purchase for an appearance? Identify the emotions you experience throughout the entire process and how long they last. Is there a pattern? How can I eliminate the bad feelings and keep the good?

To the high scoring Squirrels (9+ points), you are considered a Money Vigilant. Unlike the turtle who avoids thinking about finances, you are always concerned about your financial future. You believe that being frugal, smart with spending, and saving as much as possible is important. You don’t believe in financial handouts and barely buy on credit, always maintaining low levels of debt. You tend to be anxious about your financial future but that just drives you to save more. You have a hard time spending on yourself and more likely to spend on others. You may be uncomfortable discussing money openly, however, you are never deceitful or secretive with your partner.

Although you have healthy concerns about your financial future, your high levels of financial prudence may prevent you from enjoying the fruits of your labor. Here are some tips to not allow your money vigilance to deprive you from the financial pleasure of life:

  1. You earned it, now enjoy it. Ever heard the term work hard, play hard? Well, you’ve got half of that equation down – you just need to embrace the second part. Nobody disagrees that financial stability and saving for the future is important to your financial health, you just need to remember that life is a journey and you should enjoy the ride. Saving all of your hard-earned money for a day that may never come is a scary thought. That’s why it is critical that you budget money for yourself and enjoy your hard work while you can. If you have a financial plan, you will see that including discretionary spending on enjoyment now will not hinder you from reaching your future financial goals. Enjoy responsibly.
  2. Open up with a trusted advisor. Although chatting it up about your finances with a girlfriend may be uncomfortable, try confiding in a financial advisor or financial therapist about your financial situation and specific goals. The point is to broaden your horizons a bit, hear new perspectives, and realize that although saving for the future is important, the anxiety and stress you may be feeling can be hindering your happiness and overall mental health. Pay attention or keep a journal of how often you think about finances. Is this time taking away from family time or causing unnecessary stress? Once you identify how much of your headspace your finances are consuming, you can create change and set up dedicated times to not allow your vigilance to take over.
  3. Create a play account. That’s right, just like you have been diligently saving for your family’s future goals, you should have a savings account that is intended for fun and play! If you are uncomfortable spending this account on yourself, involve your loved ones as well. Save for a fun family vacation, activity, or purchase that the whole family can enjoy. You will find pleasure in enjoying your hard work as a family, sooner than later.

As you may have noticed, even those that have the healthiest relationships with money will lean towards a money script (or two). From the exercise above, I hope you have noticed that you do not need to have money problems to identify with a money script. Perhaps before this article, you already noticed some financial behavior that is more obvious to pinpoint, such as compulsive buying, hoarding, workaholism, or financial enabling. Otherwise, the behaviors may be more subtle or – simply a mental roadblock instead of a physical one. Hopefully, you gained some insight into yourself and your personal relationship with money. It is only after you become aware that are you able to assess whether your script is restricting you from achieving your financial goals and living a financially healthy lifestyle.

To learn more about financial therapy, visit www.financialtherapyassociation.org

Article author Celia Meagher is a Morton Capital Wealth Advisor, CFP®, and is currently studying Financial Therapy at the Financial Therapy Association.


Sources:
Klontz, B. T., & Britt, S. L. (2012). How Clients’ Money Scripts Predict Their Financial Behaviors.
Klontz, Brad, Sonya L. Britt, Jennifer Mentzer, and Ted Klontz. 2011. “Money Beliefs and Financial Behaviors: Development of the Klontz Money Script Inventory.”
Klontz, Brad, Sonya L. Britt, Kristy L. Archuleta, and Ted Klontz. 2012. “Disordered Money Behaviors: Development of the Klontz Money Behavior Inventory.”
Klontz, Brad, Rick Kahler, and Ted Klontz. 2008. Facilitating Financial Health: Tools for Financial Planners, Coaches, and Therapists.
Sages, R.A., & Britt, S. L. (2012). Introducing clients to financial therapy. Trust & Estates, 1519 (3)
Your Mental Wealth. “Discover Your Unconscious Money Beliefs” Web.
Zohlen, Evelyn M. “What’s Your Money Script?” Web. 23 May 2017. Financial Awareness, Retirement

Staying Connected During COVID-19 – Webinar #2

In the second webinar of the Staying Connected series, our Wealth Advisor, Executive Vice President and CCO, Eric Selter, and Wealth Advisor, Celia Meagher addressed the following client questions surrounding the latest developments of COVID-19 and its impact on the market:

  • What does the stimulus package mean for my portfolio?
  • What are some tips on handling my financial emotions during this unsettling time?
  • What is Morton Capital doing behind the scenes?

To register for access to these online events and/or submit any questions you would like our Wealth Advisors to answer for you please email us at questions@mortoncapital.com

https://vimeo.com/403014629

We look forward to you joining us on future webinars!

Mid Quarter Newsletter – December 2019

No Profits? No Problem!

In the venture capital industry, a “unicorn” refers to a technology startup company that has reached a private valuation of $1 billion. While few and far between in the past, these types of companies are commonplace in today’s market, and, more surprisingly still, most are actually losing money.  Uber, Lyft and Peloton are a few high-profile examples of recent initial public offerings (IPOs) that are not profitable. Of late, the public markets have not been kind to these investments, as they are all trading well below their peak prices (see table below).

The most outrageous example has been the debacle associated with the collapse of the IPO plans for WeWork. A few short months ago, the office rental company was expected to offer shares to the public at a total business valuation of $47 billion. However, in the third quarter, WeWork reported a net loss of $1.25 billion despite having revenue for that same quarter of $934 million! When investors balked at these sky-high valuations, the company was forced to withdraw its IPO, which also led to the downfall of its charismatic founder, Adam Neumann.

Given the run-up in technology stocks in the past several years, it’s obvious that many startups are positioning themselves as tech companies to command these excessive valuations. Most of these companies, however, are not true technology companies. They all use technology to run their businesses, but WeWork is basically a real estate leasing company. Founders, early investors and investment banks have bought into these “story stocks,” resulting in excessively high pricing for these IPOs. Perhaps rationality is coming back to the market as evidenced by the recent poor stock performance of some of these name brands, along with the withdrawal or deferral of other planned IPOs such as with Airbnb. When markets eventually calm down, we’ll inevitably return to a time when profits actually matter more than stories.

How Will Impeachment Affect the Markets?

As we send out this article, it seems highly probable that President Trump will become the third president in U.S. history to be impeached. However, it’s important to note that impeachment does not necessarily mean removal from office. Our seventeenth president, Andrew Johnson, and our forty-second, Bill Clinton, the two previous presidents to be impeached, were not removed from office (Johnson narrowly avoided conviction in the Senate by 1 vote!). As an aside, Richard Nixon actually resigned from office before being formally impeached.

So how is impeachment different from removing a U.S. president from office? Impeachment in the U.S. is the process by which the House of Representatives files charges against a government official, and in any ensuing trial, the Senate would determine whether to convict and remove that official from office. While only a simple majority vote is required by the House of Representatives to initiate impeachment, a two-thirds vote is required in the Senate to convict the president. Based on party lines, the House is likely to vote for impeachment. However, assuming all Democrats in the Senate voted in favor of conviction, 20 Republicans would still have to cross party lines and vote for a conviction for the president to be removed from office.

How this relates to the market

Given the relatively limited information, it’s hard to draw a strong conclusion about how impeachment will impact the markets. The market was up decently during Clinton’s impeachment and down a fair amount around Nixon’s impeachment hearings. However, the economic forces at the time may have had a much larger impact than the impeachment proceedings themselves. More specifically, the Clinton impeachment happened during the tech boom of the late ’90s while Nixon’s hearings paralleled the OPEC oil embargo and runaway inflation of the early ’70s.

Assuming everything follows party lines, it’s likely that President Trump will be impeached but not convicted and removed from office. Since the probability of this outcome is really high, the market has essentially already priced it in at this stage, meaning this outcome will likely be a nonevent for stocks. On the other hand, if there were to be a surprise conviction in the Senate, then we would expect heightened volatility.

Welcome Austin and Milan

Austin Overholt
Private Investments Administrator

Austin Overholt joined the Private Investments Team at Morton Capital in May 2019, and is integral to the team’s alternative investment coordination and information management. He is a Marine Corps Veteran and, prior to transitioning into the financial services industry, was the Associate Director of the OC Learning Center in Westlake Village. Austin earned his Bachelor of Arts degree in communications with an emphasis in business from California State University, Channel Islands, and his master’s from Pepperdine University. Austin lives in Camarillo with his wife, Megan, and their two children and enjoys being outdoors, off-roading, and barbecuing.

Milan Pfeisinger
Research Analyst

Milan Pfeisinger joined Morton Capital in June 2019. He is a research analyst and works closely with the investment team. Milan previously worked as a cost analyst at Warner Bros. Entertainment. He is originally from Austria and moved to the United States to attend college. He graduated from California State University, Northridge, with a Bachelor of Arts degree in economics and a minor in finance. Milan recently passed the Level II exam of the CFA® program. Besides work, he enjoys taking long strolls with his pug, Zorro.

Financial Bites Lunch Series

Our Financial Bites lunch series has been a great success! If you haven’t joined us for any of the previous sessions, we encourage you to attend any of the remaining lunches in the new year.

Our next session, on life insurance and long-term care, on Friday, January 24, touches on the “when and when not to” rules on buying life and long-term care insurance policies.

You can RSVP to any of these events by visiting mortoncapital.com/financialbites.

This past September, Wealth Advisors Joe Seetoo and Celia Meagher presented on budgeting.

Watch the video below and learn everything from what savings/spending strategies you should use to the importance of maintaining a good credit score.

The Six Way Investors Differ

Carl Richards, a CERTIFIED FINANCIAL PLANNER™, author and New York Times columnist, wrote an article comparing the good and the bad behavioral differences of investors. To read the article in full, please click on the below link.

Read Article >

Welcome to the World, Baby Harlowe!

We’re thrilled to announce the newest baby to join the MC family. Associate Wealth Advisor Sarah Ellis and her husband, Justin, welcomed their third baby girl, Harlowe Liv, on November 7. Congratulations to their beautiful family!

Financial Bites – Budgeting Session Video and Update

The second event in our new Financial Bites lunch series, Budgeting, went off without a hitch. In this session, our advisors honed in on the keys to a successful budget and how to get your financial footing. Thank you to all our attendees as well as our phenomenal wealth advisors, Joe Seetoo and Celia Meagher, who presented.

Our goal is to make this information clear and accessible to everyone. This session focuses on the importance of checking your financial pulse – everything from what savings/spending strategies you should use to the importance of maintaining a good credit score.

Click on the above image or visit this link to watch our budgeting session: https://vimeo.com/mortoncapital/fbbudgeting

We hope you find this video valuable. Please feel free to share this link with family and friends and on your social media channels. Any feedback you have would be extremely valuable to our team, including any recommendations of topics you would like us to present on in the future. Financial Bites is a complimentary series and our upcoming sessions are filling up fast, so we encourage you to RSVP soon. Click on the link below to view all sessions and RSVP today!

https://mortoncapital.com/financialbites

We hope to see you soon and thank you for your continued support of Morton Capital.

The MC Team