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MC Origin Stories – Sarah Ellis

What was the turning point for you in deciding to change careers?

 

What lessons have you learned from your past work life that you’ve brought to MC?

One of the key phrases I have kept with me over the years is one I learned from my first “real” job working at the local BBQ restaurant. Plastered on the wall to the left of the kitchen entrance was: “Work with a sense of urgency and always anticipate the guest’s needs.” This is a mantra I live by to this day, in all aspects.

I prefer to work quickly, yet efficiently, and I find so much value in taking a moment to think about all the “what-ifs” to ensure I am asking questions that haven’t even been answered yet. The best compliment I can receive is when someone says, “Wow, you beat me to the punch. I was just about to ask you that!”

 

Empowering a customer or client is something many of us hope to achieve in our work. What opportunities have you had to accomplish this in the past?

For me, this goes back to the saying, “Give a man a fish, and he will eat for a day. Teach a man to fish, and he will eat for a lifetime.” Being an overthinker, I always challenged this saying with follow-up questions: What if the person is too squeamish to put bait on the hook? What if the person doesn’t know how to swim if his boat gets turned over? What if he doesn’t have the resources to buy the fishing line and reel? What if he sets everything up right, but the fish are just not biting?

There is so much more that goes into empowering than just teaching. You must provide someone with the tools to accomplish the task well—the physical tools (bait, line, reel), the skillset tools (how to swim, how to drive the boat, how to overcome the aversion to baiting the hook), the learning tools (what is their learning style: doing, watching, listening?)—and in a way that makes sense for them. Empowering does not just teach someone to do something, but actually makes the person believe they can do it and do it well.

One of my favorite examples of this is with the daughter of a current client at our firm. Her mom wanted to start educating her about an irrevocable trust that was set up for the daughter when her dad passed away. Rather than just giving her access to the account (give a man a fish), or even just educating her on what a trust is, how to access the funds, and how to invest the funds (teach a man to fish), we spent time talking to her about her interests and her goals for her life. We did educate her on the basics of a trust and investing, but we took it a step further and explained the pros and cons of knowing the amount of money she had access to. We then put it back on her to make the decision to know how much was in the account or not. For some people, knowing that you have access to a large sum can actually be a demotivator. At the beginning of the conversation, she said she valued her work ethic and her pursuit of her passions. Would knowing that she had access to an inheritance cause her to sit on her laurels and not pursue those passions? We empowered her to make the decision and she actually chose not to know what the balance was. I was proud of her, not for the decision she made, but because she made that decision herself. She now has ownership of her life and goals. She knows she can ask for the balance at any time, but she made the decision that empowered her best to achieve her life goals and feel proud of her accomplishments.

Mid-Quarter Newsletter – June 2021

 

Hear Our Story Video

We’ve been busy capturing some exciting video content these last few months as we prepare to launch a new look on our website. As a firm, we wanted to create a video to give our clients and our community the opportunity to learn more about us: how we began, why we believe in investing in alternatives, how we define our mission of “empowering better investors,” what we think sets us apart as a company, and what our vision is for the future of Morton Capital.

We hope you enjoy this behind-the-scenes look into our company. Click below to meet our leadership team and hear our story.

Watch the video here.

 

Why Is Everyone Talking About Inflation?

Inflation has been a hot topic over the last couple of months. Core consumer prices, which are how much you pay for typical goods and services (excluding much more variable food and energy prices), rose 0.9% last month, the biggest monthly gain since April 1982. The combination of higher labor and material costs is leading to a larger pickup in inflation at a time when governmental policies are supporting faster economic growth. The Federal Reserve has told investors that it will continue to support the economy, with the goal of achieving full employment, so it’s willing to let inflation run “hotter” than before. The question is whether or not these factors will lead to a short-term but temporary bump in inflation or a sustained and problematic increase.

There are several global trends that are helping make the case for higher sustained inflation going forward. For years, globalization had been a force keeping inflationary pressures in check, as manufacturing and consumer goods production moved to emerging economies with cheaper labor. This trend appears to be reversing and many countries, including the U.S., are looking to bring manufacturing jobs back home. Another important global trend supporting inflation is the push toward decarbonization to offset the damage and danger of climate change. Demand for renewable sources of energy will continue to push up prices on base materials like silver, copper, nickel and lithium, as these are essential components to implementing these technologies. A third, and perhaps more important, factor has been the explosion in global debt following the COVID-19 pandemic. The ratio of global debt to gross domestic product (the total value of goods and services in an entire year!) rose to 356% in 2020, up 35% from 2019. For perspective, this ratio only rose 10% in 2008 following the Global Financial Crisis. Given this huge amount of debt, policies have to support higher inflation so that debt burdens can be paid back in future years with cheaper dollars.

As fiduciaries, we must be aware of the risk of higher inflation and its resulting erosion of purchasing power in our clients’ portfolios. We’ve been concerned about increasing inflation for many years now, and have consequently built certain positions into the portfolio that we believe can act as hedges against the depreciation of fiat currencies, which don’t have intrinsic value on their own. For example, our positions in gold and mining companies, as well as our focus on real assets (real estate equity and lending strategies backed by real assets), we believe will remain resilient and maintain their true value in an inflationary environment. In the face of rising inflation pressures and expectations, we’ll continue to monitor the overall landscape and incorporate additional real assets and inflation hedges as we see fit

 

DISCLOSURES
Information presented herein is for educational purposes only. It should not be taken as a recommendation, offer or solicitation to buy or sell any security or asset class, and should not be considered investment advice. Certain investment opportunities discussed herein may only be available to eligible clients and are presented for illustrative purposes only. Past performance is not indicative of future results. All investments involve risk including the loss of principal.

 

What to Expect from an In-Depth Financial Plan

 Here at Morton, creating a financial plan is one of the key steps to our clients getting the most life out of their wealth. But what does creating a financial plan look like for you, our clients? Contrary to what you might think, a financial plan is not something that your advisory team does for you; it’s something that you and your advisory team do together.

Your advisory team will work behind the scenes with Morton’s financial planning team to craft your plan, but it’s only with your participation in the process that we can create a plan that will serve as a road map for your financial success. There are a lot of strategies in financial planning that can help solve issues, but the more information you give us about your financial life, the better we can determine which of those planning strategies are right for you. After all, if you buy a sweater in the wrong size—no matter how beautiful—you won’t be able to wear it. If, however, you spend the time upfront taking your measurements, you’ll end up with a sweater that actually fits you. In financial planning, just like in life, one size does not fit all.
That’s why, over the course of the next several weeks, we’ll be publishing a series of posts on the various components of an in-depth financial plan: cash flow, retirement, insurance, investments, tax, and estate. Our goal is to educate you on what to expect in the financial planning process so that you can fully partner with us: what topics we’ll bring up, what documents we’ll ask for, and why all of this is important to create a full picture of your financial situation.

We believe that committing to doing a financial plan is committing to investing in yourself. The success of your plan is directly impacted by how much time and effort you want to invest in the process. If you make the commitment, we can help empower you to make informed decisions so that you’re in control of your wealth and success, whatever that means for you. Might that be a lofty goal? Yes. Is it worth it so that you can sleep at night and achieve what you want in life? Absolutely. You may still be able to make an ill-fitting sweater work, but don’t you deserve a sweater that fits you just right? Here at Morton, we think so too.

 

DISCLOSURES
Presented for informational purposes only. You should seek financial, tax and legal advice from your professional advisors before implementing any transactions and/or strategies concerning your financial plan.

 

New Podcast: The Ripcord Moment

Our Senior Vice President and Wealth Advisor, Joe Seetoo, recently kicked off his passion project called The Ripcord Moment, a podcast dedicated to empowering business owners through the exit planning process. Each episode of the podcast focuses on the experiences of business owners and their team of advisors who have made the jump and successfully handed off their business to the next generation, existing partners or strategic buyers.

Subscribe to the podcast and listen to the latest episodes of The Ripcord Moment by clicking below.

Also available to listen on Apple and Spotify
Listen to The Ripcord Moment Podcast here

 

Welcome, Brian and Sherry

Brian Mann
Wealth Advisor

What does wealth mean to you?
“Get the most life out of your wealth” have been words to live and work by at Morton Capital for years. Notice how the word “life” comes before the word “wealth”? That’s intentional. I don’t think my definition of wealth has changed over the years—it’s still very much associated with accumulating money. What has changed, however, is that my wife and children have completely transformed and refocused my purpose behind actually building wealth. Now, wealth to me feels much more like a means to an end, the “end” being a life spent using the money I earn on the people and experiences that produce lasting and meaningful memories. I want to continue to go on dates with my wife. I want my children to experience the world. And I want the time and freedom to enjoy the little things along the way. THAT’s my wealthy life.

What inspires you about the work you do at MC?
I’m inspired by the prospect of doing well by doing good and by helping clients uncover what values guide their lives (and investing accordingly). I started my career working at Human Rights First in Washington, D.C., advocating for and defending the rights of immigrants and refugees, so doing good is incredibly important to me. On a daily basis, I have the privilege of speaking with my clients about sustainable and values-based investing, and I’m able to design financial plans and portfolios that allow them to speak with their dollars. At Morton Capital, we’ve been deeply involved in our local communities and charities and offering investments in socially conscious funds for years. True to our mission and investment philosophy, I’m proud that we consistently seek knowledge and resources that allow our clients to pursue these investments at our firm.

What’s a fun fact that most people may not know about you?
I learned to scuba dive in the Philippines but am still terrified of any large marine animals.

 

Sherry Uchuion
Compliance Administrator

What does wealth mean to you?
Wealth is often defined in terms of possessions and the abundance of quantifiable things, but what if we were to consider the unmeasurable aspects of our lives the most precious? To me, wealth has always been about those moments in between: the slow mornings with your family making breakfast, taking the day to be outside with your friends, or having the ability to be present for your partner in times of celebration and times of despair. I have always defined my wealth by how I spend my time, because unlike any other currency, time is one that cannot simply be replaced.

What inspires you about the work you do at MC?
I’m inspired daily by the entire team at MC. The best part of what I do here is providing support so that my coworkers feel confident that they’re delivering the best possible service to our clients.

What’s a fun fact that most people may not know about you?
I was a piano teacher for almost 10 years and I taught students from the age of three years old all the way up to adulthood.

The Societal Duty of Businesses: Happiness, Meaning, and Fulfillment for Your People

 

Before becoming the Chief Operating Officer, my primary role at Morton Capital was as a financial advisor. In 2017, I was working with a prospective client who ran a non-profit in Northern California. We were having a discussion about her life and wealth goals and began chatting about her role as the leader of an organization. I asked her to share her favorite aspect of leading the non-profit organization and she quickly said, “The dinner table conversations.” I was immediately confused but asked her to describe what she meant. She said, “As a leader, I am responsible for making sure my team finds meaning in the mission of the organization, is fulfilled in their career and ultimately goes home to have positive dinner conversations with their families.” I was blown away by this story and it transformed my views on leadership. Most books, articles, and podcasts define leadership as being about the processes and the people. And when it comes to the people, research typically focuses on boosting productivity and engagement within the organization. But in reality, the impact of leadership goes beyond the four walls of the business. The people leaders work with go home to family and friends, and they bring whatever energy they felt during the day home with them. Sadly, according to the most recent workplace studies, 40% of people are not bringing positive energy home; they are stressed and unhappy. I believe this is why my prospective client highlighted that her most important role was to impact dinner table conversations.

It’s been four years since that meeting and upon further reflection, I asked myself, “Does the influence leaders have on their people have to end at the dinner table?” The more I have researched, the more I am convinced it does not. If people are treated well at work, they will be happier, and studies show that happier people will be less stressed and kinder towards others. This made me ask the next question, “If we had kinder people in our society, could we create real change within society at large?” There are some obvious benefits to fostering a kinder society, such as better relationships and less depression. But a lack of kindness is also a root cause of more complex societal issues, such as political divisiveness, racism, animal cruelty, and shootings. These issues are obviously multi-faceted, and I am not proposing that kindness is the singular solution; but I am proposing that it can tilt the scales.

In the same way we ask the education system to influence better behavior in children, I believe it is fair to ask that workplaces do the same for adults. In fact, the workplace is probably one of the most influential places due to the simple fact that it is where we spend most of our waking hours. If leaders saw it as their societal duty to provide their people with fulfilling, happy careers, the trickle-down effect could be meaningful.

Keep scrolling or click here to read the full article.

Leaders are the new teachers

I should note that there is not much research on how workplaces impact society, so I have been digging into other sources to support this thesis. I mentioned earlier that 40% of people are stressed, unhappy or dislike their leader. This means that almost half of the people you meet had negative experiences that week. There is also research on the impact of positive “energies” vs. negative “energies,” and what the studies found is that these energies are learned behaviors. This means that unless there is a medical reason, people are not born unkind, they learned that behavior. So, there is an opportunity to help teach people how to be kinder and happier through positive relationships. These positive relationships can actually change your physiological health for the better by lowering your blood pressure and arming individuals with a heightened ability to navigate stressful situations. We’ve actually seen proof of this in classrooms when observing teachers who approach their students with positivity instead of negativity. Think about your favorite teacher growing up. What are the key attributes of that person? I’m guessing you thought of words like empathetic, caring, thoughtful, individualized teaching, etc. Likely when an issue arose in the classroom, that teacher didn’t say,  “why are you this way?” but rather “what habits have you learned that led to this behavior and how can I help you learn a new behavior?” The research shows that children who were approached with empathy in this manner are happier, and ultimately more successful. In my opinion – as adults – workplaces are just the new classrooms and leaders are the new teachers.

Be aware of cultural disruptors that prevent happiness

Cultural Disruptor #1: “It’s them, not me”

This is the most common excuse I hear from owners of companies who are not interested in taking on the societal responsibility of helping people be happier. What’s ironic about this excuse is that the business itself will likely suffer the most from this attitude. The most frequent example of this is when leaders complain to me about the “millennials” that work for them. They “want it now,” are “entitled,” and are “lazy.” My first response to them is “know your audience”, as I am a millennial myself, and second, “what led you to the conclusion that they are the problem?” Mark Sylvester referenced this issue on his TEDx covering problem solving. He said, “everyone wants a one-click solution to solve their problem, but it’s your problem to solve and your reward to receive.” Instead of pointing at millennials as the problem, if we started asking them what they desire in a workplace to be successful, we would learn that they have several needs. They desire to have a plan, need help building confidence, and want their company to be relevant. These seem like fairly reasonable requests, especially if they are asking to grow as individuals and contribute to the company. We have to remember that millennials are the first generation that grew up being told how “special” they are, but might not actually have the confidence to make meaningful “special” contributions to the company. Many people are not lucky enough to have attentive parents, or thoughtful mentors. In the absence of those role models, leaders should assume that part of their job is to empower people to be confident in themselves.

Cultural Disruptor #2: “There isn’t enough time to help people be happy”

The difficult part about this disruptor is that time is a precious commodity and asking leaders to give more time to their people can feel like a big ask. But we have to remember that while founders start companies, they don’t usually build businesses alone. People build businesses, so shouldn’t we spend time building up people? This means teaching people the skills that they need to be successful. And when they aren’t successful, we should be asking questions to get to the heart of the issue so they can learn from their mistakes. For example, whenever there is an issue, leaders can use the following three-question system: 1) what could I have done differently? 2) what could the individual have done differently? 3) are there any processes/systems that need to change to be more successful in the future? Using these three questions will help people feel supported and not fearful that they alone are to blame when mistakes inevitably happen. Sometimes the goal of helping people be happier can actually be accomplished just by helping them feel safer.

Cultural Disruptor #3: “Blind loyalty”

Every time someone tells me one of their core values is loyalty, I am equally thrilled they have this value and become cautious because loyalty can turn into blind loyalty in an instant. This blind loyalty causes businesses and organizations to keep people in leadership positions who are posing obstacles to a firm’s progress. For example, let’s say you run a family business and Uncle Dave is in charge of the sales team. Over the past 2 years, you have experienced 25% turnover in that department, and in exit interviews, people have expressed that they didn’t feel empowered by Uncle Dave. You chatted with Dave about this a few times but have been reluctant to fire him because he is “family.” This is the same story I hear when people in leadership have “been with the company for 20 years and it’s too late to change them”, so we just keep dealing with their negative energy/leadership style. This type of blind loyalty resulting from nepotism or company tenure, is detrimental to organizations and should be dealt with or avoided at all costs because your people are watching you tolerate this behavior. This tolerance will cause trust to slowly diminish within the organization, lead to increased gossip/turmoil, and undermine the mission of promoting happiness in your people.

Cultural Disruptor #4: “Throwing money at the problem”

There is ample research showing that money is not the best tool for truly motivating people. However, it is generally the easiest solution that requires the least amount of energy and thoughtfulness. In the short term, using money to motivate people or promote happiness will probably work. However, in three months, people tend to forget about their raise/bonus and revert back to habits that do not promote the business or workplace wellness. Leaders need to use a combination of intrinsic and extrinsic motivation to develop their people. Intrinsic motivation tends to be more feelings-based – i.e., feeling that their boss cares about them, or they are proud of the mission of the company, or the culture is awesome. Extrinsic motivation is generally about compensation and benefits. Both are important, but intrinsic motivators are best for long-term happiness and growth.

How organizations can influence change

1) Be curious about trust

It will be difficult for any organization to make progress if they have not taken time to address where a lack of trust exists within an organization. Trust is tricky because there are no simple solutions. In a podcast with Esther Perel, a renowned psychotherapist and author, she discussed trust and quoted a philosopher who  said, “Trust is a risk masquerading as a promise,” which is a profound concept. We often ask people to trust us because of our history or expertise, but what we are really asking is for people to take a risk on us. This is a bigger commitment than we may realize and takes a significant amount of effort on the part of the other person. To truly create a culture of trust, I recommend reading two books simultaneously – the Five Dysfunctions of a Team and the 15 Commitments of Conscious Leadership. Start with the first few chapters of the 15 Commitments so that your mindset is open and committed to learning. Then read the Five Dysfunctions with 3-6 leaders within the organization. There are some great practical applications in the book that will help any organization understand where a lack of trust is negatively influencing the business. At Morton Capital, we decided to take a year off from growth in 2018 to focus on trust and it was the best decision we could have made. Now, conversations around trust are normalized within our company and we more quickly and openly address issues that inevitably arise.

2) Develop career pathing that increases engagement

An increase in engagement is correlated to happiness and fulfillment. One of the most important ways to foster engagement is to create clear career paths for every employee within the organization. In order for these career paths to be effective, they need to both be scalable and customized. Start by creating general career paths within the organization that outline the qualitative and quantitative skills necessary for an individual to make progress. The qualitative skills should reflect the values of the company, emphasize respect for colleagues, and highlight the importance of learning. Then, survey team members to find out how they want to contribute and add value to the organization. If they have questions about their options, dig in and have in-depth discussions about the potential career paths within the organization. When their goals are clear, meet with team members regularly to develop customized timelines to help them contribute to the organization in a way that will grow the company and create career opportunities. This is especially important in a remote workplace, where managers will have to adopt “goal-based” leadership vs. “presence-based” leadership to measure success. In addition, create an educational program to help people grow their workplace skills (such as organizational or goal-setting skills) and their technical knowledge to scale learning and development. According to workplace surveys, this level of engagement/happiness results in an average of 21% higher profitability than unengaged organizations.

3) Have a vision people will rally around

Simon Sinek recently published a book called “The Infinite Game” where he proposes that all organizations should have a ‘just cause’ that influences the behaviors and vision of the company. This helps people find meaning in their work and do something that is ‘for others’ instead of just for the sake of making money. In our organization, we have a mission of “empowering better investors through education” with the goal of helping people make better financial decisions that align with their values. By working for the benefit of others, we are able to be clear about our company goals and strategies, leading to a better client experience and a vision that inspires our people.

Leaders can inspire people to be better members of society

It’s been said that leaders need to lead by example and be the change they want to see. When I think about my own career – starting as a wedding planner, then a barista, followed by fitness instructor, an operations administrator, financial planner, advisor, and now COO/business owner – I can certainly say that I would not have made it this far without leaders who believed in me and saw the importance of workplace happiness. Our CEO, Jeff Sarti, will openly share that one of his top priorities for our company is creating an organization where people love coming to work. This statement, along with his humble confidence, empathy, and positive leadership, gives our entire team motivation to continue pushing forward the mission of the company. This energy causes a boomerang effect, inspiring our firm’s leadership to empower our team so that they are fulfilled in their careers, bring positive energy into their dinner table conversations, and are kinder members of society.

 

To see research/references mentioned in this article, click here.

To view Stacey’s TEDx conversation on “The Societal Duty of Businesses,” click here.

Disclosures:

AUM information as of 12/31/2020. Morton Capital is an SEC registered investment adviser; however, such registration does not imply any level of skill or training.  Our disclosure brochure (Form ADV Part 2A) contains detailed disclosures regarding our services and fees, along with applicable conflicts and how we address such conflicts.  A copy can be obtained upon request or at http://www.adviserinfo.sec.govwww.adviserinfo.sec.gov.

 

 

 

MC Origin Stories – Joe Seetoo

1) What opportunities have you had to accomplish this in the past?

 

2) What personality traits do you believe have set you up for success at Morton? 

1) Passion for Learning
“I am always doing that which I cannot do, in order that I may learn how to do it.” — Picasso
I can remember at a young age my father saying, “Education is something no one can ever take away from you” and “knowledge is power.” I believe his views were shaped by his father, a Chinese immigrant who had escaped the horrors of communism in the late 1930s/early 1940s and fled to the U.S. I’ve adopted a less Machiavellian approach to learning, one that is founded more in a naturalistic belief that we as humans have a proclivity towards growth and expansion. I am constantly reading and learning new things, everything from psychology to neurolinguistic programming to guitar scales. I believe learning allows us to cultivate aspects of ourselves that we might otherwise overlook.

2) Organized/Structured
I still make my bed every morning (okay—6 days a week), my calendar is color-coded, and I can’t go to sleep with a messy house. Given the volume and speed of information, we are required to process in today’s environment, staying organized can be a challenge. I believe having routine systems and processes (i.e., habits) in place both personally and professionally reduces the cognitive load on the brain, which can lead to mental fatigue. By reducing my decision fatigue related to mundane but necessary tasks, I’m able to free up more space for deep work with our clients. Naturally, many clients have scattered random questions and concerns that feel disjointed even though they relate to their financial affairs. They are challenged to organize their thoughts and are stuck in analysis paralysis. I’m able to help organize their thoughts and formulate an action plan that allows them to move forward. And, if I’m being honest with myself, organization gives me the illusion of control. If I’m operating from a place of peace, my ability to listen carefully to a client’s question or concern and respond in a thoughtful manner increases exponentially.

3) Empathy
“We are all just walking each other home.” — Ram Dass
Easing the burden of our fellow man is part of what we do as humans. We are wired to be social creatures. I’m a deeply spiritual person. There is a level of emotional intimacy that evolves over the life of a relationship between an advisor and a client because money is one gateway to many other aspects of our lives. Ensuring our families and loved ones are taken care of, sending our children to college, buying a new home, and having the ability to retire are all major milestones in the human experience. For many, money is an emotional topic because it represents our hopes and concerns about what we want in our lives. Being able to put myself in my client’s shoes in the moment and see where they are coming from helps foster trust and open lines of communication.

 

3) How have your career aspirations changed over the years leading to this point?

I’ve been in wealth management since 1998—over 22 years. I am 44. Early in my career, I was determined to become an advisor. I elected to obtain the Chartered Financial Analyst® charter in the early 2000s. I continued down the path of becoming the best advisor I could by completing the CERTIFIED FINANCIAL PLANNER™ designation in 2008 in addition to coursework on behavioral finance and advanced estate planning. In 2014, I was blessed with the opportunity to become a partner at Morton Capital and work more closely with senior leadership, not only as an advisor but also as an owner. Our company has grown to over 50 teammates responsible for more than $2 billion in assets as of 12/31/2021. We have 13 owners/partners.

More recently, I have been focused on broadening the scope of our expertise in a few key areas:
Exit Planning—I am committed to helping owners maximize the value of their greatest asset: their business. As part of my journey and being involved in a Generation 1 to Generation 2 succession plan at Morton Capital, in the summer of 2018, I completed a designation called the Certified Exit Planning Advisor, sponsored by the Exit Planning Institute. By experiencing firsthand what many current business owners and next-gen owners will deal with, I believe I can use my knowledge both as a financial planner and owner to help improve outcomes. To that end, in July 2020, I launched the Conejo Valley Chapter of the Exit Planning Institute https://exit-planning-institute.org/chapter/epi-conejo-valley-chapter/. It’s a forum for advisors and owners to share knowledge and best practices related to business succession planning.

Additionally, I have recently launched a podcast called The Ripcord Moment, where we interview owners (and their advisors) who have made the jump and what pearls of wisdom they can share with owners contemplating a sale/transition at some point in the future. These firsthand experiences are a powerful tool to help shape more successful outcomes for other owners.

Mentoring and Recruiting—I’m passionate about what we do at Morton Capital and have been able to help recruit a number of talented professionals to our organization over the years. I am committed to making Morton Capital an even more resilient firm. I enjoy mentoring our talented staff and helping them become the best versions of themselves.

Quarterly Commentary – Q1 2021

Who Controls Interest Rates?

The critically acclaimed news show 60 Minutes debuted in 1968 using a unique style of investigative journalism that was centered around the reporter telling the story (Wikipedia). Almost 53 years later, the show still brings in strong ratings. At Morton Capital, 60 Minutes used to be a hot topic around the proverbial water cooler (really the coffee machine) on Monday mornings, especially when stories focused on the financial markets. The water cooler may have migrated to Zoom, but the show is still a topic of conversation in 2021’s virtual world.

When Jerome Powell, the head of the Federal Reserve (“Fed”), was on the show in early April of this year, it posed a good opportunity to discuss certain trends in U.S. monetary policy. One of the more insightful questions that came up was from one of our newer team members. Having intently listened to our education sessions for several weeks, this team member was unclear as to how Mr. Powell could claim that the Fed was “highly unlikely” to raise interest rates in 2021 when just weeks earlier our investment team had been presenting on the big rise in rates during the first quarter. To address this disconnect between reality and what appeared on the news, let’s first take a closer look at what has happened to the market over the last few months.

 

Stocks Continued Their Ascent While Bonds Took a Hit in the First Quarter

The jump in interest rates that our investment team discussed led to a rare negative quarter for bonds in what was otherwise a stellar start to the year for risk assets.

Stocks continued their tremendous run from the lows of March 2020 as the vaccine rollout and projected economic growth accelerated. While there is certainly basis to be optimistic about rebounding economic growth in the short term, by many historical measures, stocks are in dangerously overvalued territory. Recent stock buying has reached a speculative fervor, with investors pouring into stocks at record levels. In the past five months alone, investors have purchased over $500 billion in stock funds, which is more than they purchased in the previous 12 years combined! The types of stocks being purchased are also more speculative in nature, with trading volume spiking dramatically for more risky penny stocks (stocks that trade under $1) and the performance of technology companies with negative earnings meaningfully outpacing their profitable counterparts.

While these trends in stocks are alarming, they are not necessarily new as speculation and risk-taking have been pervasive in stocks for some time. What was new was the meaningful loss in core bonds. While a 3.4% loss may not seem large enough to be labeled “meaningful,” this is an apt description when compared to the potential return on this investment. The Barclays Aggregate Bond Index, widely considered a broad measure of the traditional, or core, bond market with exposure to both U.S. government and corporate bonds, had an annual yield of 1.1% at the beginning of the year. Therefore, that 3.4% loss wiped out approximately three years’ worth of expected returns for investors. And that loss occurred in just three months, with interest rates increasing by only 0.5% for an ending yield of 1.6%. This 0.5% increase is a big move on a percentage basis but would be considered modest on a historical scale. The below chart tracks the nominal yield of the Barclays Aggregate over time and shows just how small this recent increase was when put in a historical context.

 

What Causes Interest Rates to Change?

So, with the above context, let’s revisit how Fed Chairman Powell could say that the Fed had no intention of raising interest rates while interest rates were already on the rise. While not a widely understood concept, the answer is that the Fed does not have complete control over interest rates. Technically, the Fed only has the ability to set short-term interest rates. It has tremendous influence and can try and manipulate long-term rates, but at the end of the day, long-term rates can be driven by other factors in the broad market.

Let’s explore some of the factors beyond the Fed that impact the direction of interest rates. As a reminder, interest rates are simply the cost of borrowing money from another entity. Low rates typically happen when there is a slow growth economy or even a recessionary environment. In these environments, there will be low demand for borrowing. Businesses will not be eager to expand, and perhaps individuals will not be eager to take on leverage, so rates stay low. So what do banks do? They lower interest rates even further to try to stimulate business and borrowing activity. Governments can also intervene to lower the interest rate targets that they control in an effort to stimulate economic growth.

On the other side of the coin, high rates are typically associated with an economy that is growing quickly. When an economy is strong, there is more demand for businesses to expand and consumers to spend, and this results in a higher demand to borrow. Because of this, banks and lenders can charge higher rates. This is part of the reason why rates have risen in recent months. Forecasts are coming out that economic growth in 2021 may be very strong. While it was expected that economic growth would be positive coming out of the recession we have been in, new expectations are pointing to even stronger growth than previously anticipated.

Another factor that could lead to higher rates is fear of unsustainable debt levels. Our country has been on an unprecedented spending and debt spree to combat the crisis that we have faced. Typically, when a country’s debt levels expand rapidly, as has happened of late, interest rates rise. This is for two main reasons. First, it comes down to the creditworthiness of the borrower. When a country piles on debt to unsustainable levels, a lender or buyer of that debt will demand a higher interest rate to compensate them for the increased risk they are taking on. However, it is almost unthinkable that the U.S. government would default on its debt payments, which leads us to the second reason why interest rates may rise when a country’s debt levels expand rapidly: potential inflation. The U.S. government has both the power of the printing press and the ability to continue to issue new debt to help pay for or refinance old debt. While these powers basically eliminate the possibility of the U.S. defaulting on its debt, the result is increasingly more dollars being printed and increasing debt levels with each passing year. If you are lending money to the U.S. government, this is not a comforting scenario. While, yes, you will get your money back at the end date, or maturity, of the loan, in the time that has passed, how many new dollars have been printed? With all of these new dollars in circulation, the concern is that the value of each of those dollars will erode over time and your future dollars are going to be worth less. Lenders that see this trend should demand higher interest rates to help compensate them for this risk.

 

Should Investors Be Worried about Inflation?

We have never seen fiscal spending and the issuance of new debt anywhere near the scale of what we have seen in the last year. The cumulative price tag for all the COVID-19 rescue packages issued to date is over $5 trillion and there is talk of another $2 trillion infrastructure package and even more stimulus to come. By the end of 2021, U.S. debt will be around $30 trillion, three times the level it was back in 2008.

Not only are debt levels ballooning but the money supply, or amount of money in circulation, has ballooned as well. The below chart tracks the annual percentage increase in dollars that have been created in the last 45 years.

On a historical basis, the annual increases in money supply are almost always above 0% and often close to 10%. The amount of money printed in the past year, however, is unprecedented. This is because the Fed is printing dollars to the tune of roughly $120 billion per month and purchasing our country’s debt to help finance all of the new spending programs. These massive new amounts of dollars filter their way through the economy, and the concern is that inflationary pressure will build. It is pretty simple: more dollars chasing the same assets, goods, and services will result in increased prices. We are already seeing increased asset prices (e.g., stocks and real estate) as a result of these policies, and the risk is that pressures are building so we will see increased prices with goods and services as well.

 

Morton’s Approach to Risk Management

If a 0.5% increase in interest rates can wipe out three years of returns for the broader bond market, what can investors do to protect themselves? As discussed previously, many investors are pouring into stocks because bonds are so unattractive and they have no real alternative. This strategy comes with a completely different set of risks as stocks continue to reach new all-time highs. Many investors need some component of fixed income in their portfolios to hopefully act as a ballast during periods of market volatility and also to act as a source of liquidity. So as much as investors may want to write bonds off completely as being unattractive, that may not be a viable solution for everyone.

At Morton, we have approached the liquid fixed income space with an emphasis on risk management. We can meaningfully reduce or eliminate our interest rate risk by not investing in bonds with longer-term maturities. In some instances, we can even invest in floating-rate bonds, where our returns will increase as interest rates rise. Certain less traditional bond strategies can also introduce different risk and return drivers from mainstream bonds, offering true diversification benefits for a portfolio. These same strategies often come with higher current cash flow as well, which is welcome in this low-interest-rate environment. These more opportunistic strategies are not without risks, but we feel that they are smarter risks than just sticking our head in the sand with long-term bonds and hoping that rates and inflation do not rise.

Our approach is well-suited to a challenging quarter like this last one, where traditional bonds took a big hit. The below chart illustrates the performance of all of Morton’s fixed income strategies for the quarter.

The funds grouped together in green typically target shorter-term, more stable bonds, while the blue grouping represents funds that we consider more opportunistic in nature. As designed, all of our strategies significantly outperformed the index (orange bar on graph) in a period of rising interest rates. Beyond the liquid space, we have also made significant allocations to private lending funds that we feel offer a compelling risk/return profile. When appropriate, we prefer to take on some liquidity risk as a substitute for traditional market risk as we feel this effectively accomplishes our goals of risk management, true diversification, and higher cash flow.

 

You Cannot Control the Wind, but You Can Adjust Your Sails.

This sailing proverb speaks to the current environment and the importance of recognizing both what we can and cannot control. Specifically, the winds of the market and the winds of the economy are circling around in lots of different directions. They are very unpredictable and in many ways are behaving differently from what historical data or norms would predict they should. In this unpredictable environment, it is more important than ever for us to adjust our sails—to manage risk and maintain our calm and resiliency even when the world around us is behaving erratically.

We can adjust our sails by avoiding traditional interest rate risk in our bond portfolios and limiting stock exposure in an environment where prices are being driven by speculation and hope for future growth. There are valid reasons to own stocks, as they could be beneficiaries in certain high-inflation environments, but there are also meaningful risks to stocks, and our focus is on finding investments that fit in with our philosophy and where we can analyze the fundamentals and control a larger number of variables. Integrating alternative assets that align with this philosophy is what we believe builds resilient portfolios for the long term.

Best Regards,

Morton Investment Team

 

Disclosures:

Information presented is for educational purposes only and is not intended as an offer or solicitation with respect to the purchase of any security or asset class. This presentation should not be relied on for investment recommendations. The private investment opportunities discussed herein are speculative and involve a high degree of risk. References to specific investments are for illustrative purposes only and should not be interpreted as recommendations to purchase or sell such securities.

Targets or other forecasts contained herein are based upon subjective estimates and assumptions about circumstances and events that may not yet have taken place and may never take place. If any of the assumptions used do not prove to be true, results may vary substantially from the target return. Targets are objectives, are shown for information purposes and should not be construed as providing any assurance as to the results that may be realized in the future from investments. Many factors affect performance including changes in market conditions and interest rates and changes in response to other economic, political, or financial developments. There is no guarantee that the investment objective will be achieved, and MC makes no representations as to the actual composition or performance of any security.

Although the information contained in this report is from sources deemed to be reliable, MC makes no representation as to the adequacy, accuracy or completeness of such information and it has accepted the information without further verification. No warranty is given as to the accuracy or completeness of such information.

Past performance is no guarantee of future results. All investments involve risk including the loss of principal.

 

Performance figures reflect the reinvestment of dividends and are net of fund fees, but do not reflect the deduction of MC investment advisory fees. Your returns may be reduced by the advisory fees incurred in the management of your account. For example, the deduction of a 1% advisory fee over a 10-year period would reduce a 10% gross return to an 8.9% net return. Performance for the period reflected is due to a variety of factors, including changes in market conditions and rising interest rates.

 

U.S Large Co Stocks:

S&P 500 Index

U.S. Gov’t 1-3 Yr. Bonds:

Barclays U.S. 1-3 Yr. Treasury Bond Index

U.S. Small Co. Stocks:

Russell 2000 Index

 Commodities:

Bloomberg Commodity Index

Developed Int’l Stocks:

MSCI EAFE Index

Emerging Market Int’l Stocks:

MSCI EM Index

Core U.S. Bonds:

Barclays U.S. Aggregate Bond Index

R.E./REITs:           

FTSE NAREIT All REITs

The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. The index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. The S&P 500 Index focuses on the large-cap segment of the market; however, since it includes a significant portion of the total value of the market, it also represents the market.

The Bloomberg Barclays 1-3 Month U.S. Treasury Bill Index includes all publicly issued zero-coupon US Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed rate and non-convertible.

The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index.

The Bloomberg Commodity Index and related sub-indices are composed of futures contracts on physical commodities and represents twenty-two separate commodities traded on U.S. exchanges, with the exception of aluminum, nickel, and zinc.

The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.

The Barclays Aggregate Bond Index is a market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed-rate, publicly placed, dollar-denominated, and nonconvertible investment grade debt issues with at least $250 million par amount outstanding and with at least one year to final maturity.

The Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.

The Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.

The FTSE NAREIT All REITs Index includes all tax-qualified real estate investment trusts (REITs) that are listed on the New York Stock Exchange, the American Stock Exchange, or the NASDAQ National Market List.

MC Origin Stories – Thao Truong

1) What was the turning point for you in deciding to change careers?


After I left England, I moved to the United States. I just wanted to accelerate my college education and finish it quickly so that I could start making money and be my family’s savior. I moved to the States for more affordable options. I attended a community college in Seattle and graduated from the University of New Hampshire. I decided to study finance, hoping that the degree would give me the knowledge on how to become rich sooner.  While in school, I tried to make money from several different channels, started a few different businesses with friends, and invested in options and penny stocks. But like what your advisors would normally tell you: “Don’t try to beat the market.” I lost money from those risky moves.  Looking back, what helped get me through my hardships were: (1) the support from friends; (2) my personal emergency fund (which I had before my family hit rock bottom); (3) discipline for a long-term financial plan; and (4) my stable college jobs like tutoring in economics, financial accounting and statistics, and being a teaching assistant for microeconomics. During my last two years of college, I worked as an economic forecasting analyst for a professor at my university, and then as one of the 35 financial analyst students specially selected to manage the university’s endowment. Then, through working with affluent clients in the wealth management business, I slowly discovered that I had put the wrong attention on MONEY matters. Prosperity and happiness are far beyond money. There is also knowledge, health, and mental wellness. Financial planning is not about getting rich, it is about long-term planning for your money so it works for your values.

 

2) What lessons have you learned from your past work life that you’ve brought to MC?

 

3) Empowering a customer or client is something many of us hope to achieve in our work. What opportunities have you had to accomplish this in the past?

I believe in the power of financial literacy. I want to be able to extend my knowledge to others who do not have the means. I strive to promote financial literacy to the public by providing free financial workshops for my local community. I also volunteered with San Diego Junior Achievement to promote financial literacy to middle school and high school students. I was an active member of the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA). I co-founded a small women-advisor-only study group that is comprised of younger minority advisors. We have learned the power of having a community of friends and peers to turn to for advice and support. I was humbled and honored to be a recipient of the 2019 Diversity and Inclusion Scholarships for both FPA and NAPFA. These awards were granted to professionals willing to demonstrate and act upon an intense desire to affect the diversity of the financial planning profession.

MC Origin Stories – Jason Naiman

1) What was the turning point for you in deciding to change careers?

 

2) What lessons have you learned from your past work life that you’ve brought to MC?

If I were to find the common thread in the last 50+ years of my working life (OMG!), I guess I just mentioned it above: do the right thing. It wasn’t always easy in the life insurance business because of the inherent conflict of interest that existed based on how you were paid. What was best for your client wasn’t necessarily best for you. From the moment I joined Morton Capital, that issue has been in the rearview mirror.

 

3) How have your career aspirations changed over the years leading to this point?

Having had 14 years in the life insurance business, empathy was baked into your psyche. Selling an “intangible” requires being able to connect at a much different level than if you’re selling a product the buyer WANTS to buy. An axiom in our business was that life insurance wasn’t bought; it was sold. When you think about it, life insurance is a very empathetic purchase: it is being bought for the potential benefit of others. That’s empathy.

Mid-Quarter Newsletter – March 2021

Congrats to the MC Team!

For the third consecutive year, and ranking #2 on the 2021 list, we feel incredibly honored to be recognized on the prestigious annual Best Places to Work for Financial Advisors list by InvestmentNews.

Each year, InvestmentNews recognizes standout employers in the financial advice industry. These firms, ranging from small practices with fewer than 20 people to large companies with over 700, go beyond offering attractive benefits and perks and create work atmospheres that empower their employees with the skills and confidence necessary to deliver the best possible investment and financial planning guidance to clients.

We are SO PROUD of each and every one of our team members for helping us earn this distinction. Without them, this would never be possible.

Click here to read the full article and explore the list.

 

Revisiting Your Savings Strategy

With many service industries shuttered due to quarantine measures—not to mention the seemingly never-ending stay-at-home orders—the opportunity for spending money has significantly decreased over the last year (though the at-home-entertainment budget might have increased). According to the U.S. Bureau of Economic Analysis, the result has been a record-high savings rate for households with disposable income: the personal savings rate hit 32.2% in April 2020, breaking the previous record of 17.3% in May 1975 (FactSet). Since having fewer opportunities to spend may continue to be the case until the vaccine is fully rolled out, now is a great time to revisit your current savings strategies, especially when it comes to emergency fund savings, retirement savings, and paying down debt.

Read more

 

Untold Truths of Acting in Your Clients’ Best Interest – Interview With Our CIO, Meghan Pinchuk

Our Chief Operating Officer, Stacey McKinnon, recently sat down with Meghan Pinchuk, our Chief Investment Officer, to talk about “Untold Truth # 5 – Don’t just invest with the herd” from Stacey’s industry white paper and why Morton Capital feels investing in asset classes outside of stocks and bonds helps protect our clients.

These types of investments come in all different shapes and sizes and in this interview, Meghan shares how we execute our alternative investment philosophy, including how we source and structure our investments.

They also talk about why it was important for Meghan to build a resilient enterprise when she took over running the firm with Jeff Sarti in 2013, her love for learning, and how the most successful clients are generally engaged, humble, and open-minded.

Click here to read Stacey’s industry white paper on the “Untold Truths of Acting in Your Clients’ Best Interest.”

View more of Stacey’s interviews from the Untold Truths series featuring industry experts such as Michael Kites, Chief Financial Planning Nerd at Kitces.com, and Philip Palaveev, CEO of The Ensemble Practice, LLC, here.

Watch the interview here.

 

The Madness of Crowds

In 1841, Charles Mackay, a Scottish journalist and author, published his study of crowd psychology, called Extraordinary Popular Delusions and the Madness of Crowds. In the first volume of his study, he examined economic mass manias, notably the tulip mania in Holland in the 1630s. Due to a bull market in tulip bulbs, many in Holland abandoned their businesses to grow tulips, trade them, or become tulip brokers. Even banks got involved and started accepting tulips as collateral, thus fueling the speculative bubble. Not long after, the mania collapsed in waves of panic selling, leaving many people financially ruined and shocking the Dutch economy.

Throughout history, there have been many examples of similar mass manias driven by crowd behavior, even in spheres beyond the financial markets. However, in today’s era, social media’s ability to quickly mobilize crowds for a single purpose has introduced a new level of risk. When joining crowds, individuals tend to develop a herd-like mentality. Regardless of their character, intelligence, and education, once in a group, individuals get swept up in the collective mind and may engage in riskier behavior than they otherwise might have on their own.

One recent example of this type of behavior was the price manipulation in GameStop stock earlier this year. This price manipulation was initiated by the r/WallStreetBets Reddit forum, which has over 9 million subscribers and is known for its aggressive trading strategies. In this instance, the crowd had decided that by buying GameStop stock, they would somehow be able to redistribute gains from hedge funds that had profited from betting against the struggling video game retailer into the hands of ordinary people. The power of the crowd caused the price of shares to shoot up by nearly 2,500% in the month of January, at one point trading at a volume nearly twice that of Apple. [1]

What happened with GameStop clearly shows the extent to which the financial markets are susceptible to the mobilization of investment crowds. And while a large group of people can indeed wield enough power to move markets, without investment fundamentals or appropriate risk management backing amateur investors’ moves, their gambling behavior may result in devastating consequences, just as it did during tulip mania nearly 400 years ago.

[1] Yahoo Finance

 

Welcome Lauren and Mollie

Lauren Salas
Private Investments Administrator

Lauren joined Morton Capital in June 2020 as a Private Investments Administrator. Previously, she worked as the Business Operations Coordinator for eight branches of an HVAC distributor in the Northern California region. She graduated from New Mexico State University with a Bachelor of Business Administration in marketing and managerial leadership. She is currently studying for the Series 65 exam. In her free time, Lauren enjoys going to the beach, camping, and traveling.

 

Mollie Privett
Client Service Associate, CFP®

Mollie joined Morton Capital in July 2020 as a Client Service Administrator before moving into a Client Service Associate role on the advisory team. Mollie graduated magna cum laude with a bachelor’s degree in business management from California State University, Long Beach, in 2017. Throughout her roles at prior companies as a Financial Representative and Client Service Specialist, she earned her life, health and disability insurance license, Series 6 license, Series 63 license, and her CERTIFIED FINANCIAL PLANNER™ certification. She is extremely passionate about helping others, solving problems, and communicating effectively. Outside of work, Mollie loves spending time with her family and friends, going to the beach, writing poetry, cooking plant-based meals, and being in nature.

 

MC Team Fitness Challenge For Safe Passage Youth Foundation

Making a healthy impact and supporting the community continue to be main focuses of ours. At the beginning of January, we kicked off our “Get Moving” initiative where our entire team participated in a fitness challenge to raise money for Safe Passage Youth Foundation, a local organization that provides daily nutrition and emergency COVID relief to hundreds of children (grades K-12) and their families. For every workout or outdoor activity each team member completed, MC made a donation to Safe Passage. In all, our team completed over 700 workouts and raised over $3,500. We are grateful for the opportunity to be a part of this wonderful cause in our local community.

Learn more about Safe Passage here.

MC Origin Stories – Chris Galeski

1) What was the turning point for you in deciding to change careers?

 

2) What lessons have you learned from your past work life that you’ve brought to MC?

You can always improve and learn more. Most of us ignore our weaknesses and spend time doing the things we are good at. In order to give our clients what they deserve, we need to constantly reflect on our weaknesses, understanding the why behind them, and learn from those weaknesses and turn them into strengths. We can accomplish a lot more as a team than as individuals. Most of us have the same struggles and fears in life when it comes to money, so we have built a team here at MC that is inspired to work together collectively and come up with ideas and solutions to help clients move away from fear about money and towards the enjoyment of their wealth.

 

3) How have your career aspirations changed over the years leading to this point?

I went from trying to change or improve one client’s situation at a time to a place where we work together as a team to impact a larger audience and community. Working at Morton Capital and having a true team atmosphere allows us to deepen relationships and impact so many more people both internally and externally. I am driven by our ability as a team and company to impact the community and inspire others to think about money differently.

 

4) Has there been a common thread in the work experience you’ve had so far in life?

Besides competing and playing golf for a living, I have always been a financial advisor. I really enjoy helping people better understand money and investing. To me, relationships and trust in the process have been the most common threads in all the work I have done. Success is achieved by the consistent things we do each day, which compound over time and give us the ability to achieve great things. Rarely in life does something significant happen without sacrifice, having a process and being consistent in our actions. The best advice ever given to me is to enjoy the process more than the achievements. All great things happen when you enjoy and trust the process.

Has empathy been a quality you’ve drawn on in roles you’ve held before Morton? As an advisor, friend, husband and father, empathy is the key to a successful relationship. Without it, how can you possibly put yourself in someone else’s shoes? Understand where they are coming from? It is a crucial piece in order to be a good communicator. It’s not my job to put my values on someone else’s money or wishes. It is my job to help guide people in the decisions that will help them find success and get the most life out of their wealth. Empowering a customer or client is something many of us hope to achieve in our work. What opportunities have you had to accomplish this in the past? Helping clients identify that “bucket list” of things that they want to accomplish and then planning them one at a time is an exciting exercise. There have been several instances of this in my career with clients. There have been other instances like helping give to charities, retire earlier, or just even retire that have been just as much fun. Anytime I have a conversation with a client, and they walk away feeling better, more comfortable or happier is a great feeling.

MC Stories – Save Your Portfolio . . . and the World

Climate change hasn’t always been terribly high on my list of concerns. Don’t get me wrong, I believed the science, but it had been a selfish, somewhat conscious choice to ignore dealing with something I was pretty sure wouldn’t greatly affect me. I’ve lived in Santa Monica, where the beach is vast, and in Pasadena, where the sun shines hot, and I could never envision a time where either would become undesirable, let alone unlivable.

My wife, Alyssa, began her career preparing for and responding to natural disasters, first in California, then in a similar role with the U.S. government at FEMA, which moved us to Washington, D.C. She dealt with fires in the West, hurricanes in the Northeast, and tornados in the Midwest. She even traveled to Japan to understand the impact of their disastrous tsunami in March 2011. Throughout her 15 years working on climate and conservation issues, she’s spent innumerous hours educating governments and businesses alike on the perils of increasing temperatures and global sea-level rise.

While I once may have felt captive to these data-dense presentation rehearsals, I came to first merely absorb, but later to seek, the alarming data she was gathering. It was then that I began to make the inevitable connections between her professional world and mine. I thought, “I’m likely investing in companies that do the same damage my wife is devoting her career to remedying. Could I invest and make money in companies that were doing less harm? Or even some good? Environment can’t be the only social issue affected by investing. Could I make even a small impact by limiting exposure to companies that profit in guns, tobacco, child labor, etc.?”

I’ve devoted an increasing amount of free time over recent years to the pursuit of educating myself in the nuances of socially conscious investing and marrying my values to my own personal investment choices. At Morton Capital, we’ve been deeply involved in our local communities and charities and offering investments in socially conscious funds for years. True to our mission and investment philosophy, I’m proud that we consistently seek knowledge and resources that allow our clients to pursue these investments at our firm.

When I introduce my clients to the concept of investing with their heads AND their hearts, I begin, as below, by exploring some of the broader definitions and themes. I also ensure that I address some common misconceptions associated with socially conscious investing. I most commonly see that people think that socially conscious investing means having to sacrifice returns, or that they are more expensive and harder to access. And while not all investments will be available or appropriate for every investor, I find it helpful to address multiple disciplines within the socially conscious investing realm to help provide more insight into the wide variety of strategies that exist. Below are three commonly implemented ones, listed from broader value-focused strategies to those purely focused on impact.

ESG (Environmental, Social, Governance):
This common strategy evaluates companies based on how well they are managing the various environmental, social, and corporate governance issues they face in their businesses. A top-down ESG investment strategy invests in companies that rate highly in environmental, social, and governance factors while still maintaining a focus on the returns and associated risks.

SRI (Socially Responsible Investing):
Socially responsible investing goes one step further than ESG by actively eliminating or selecting investments according to specific ethical guidelines. The underlying motive could be religion, personal values, or political beliefs. Unlike ESG analysis, which shapes valuations, SRI uses ESG factors to apply negative or positive screens to the broader investment universe.

Impact/Thematic Investing
In impact or thematic investing, positive outcomes are of the utmost importance—meaning the investments need to have a positive social or environmental impact in some way. The objective of impact investing is to help a business or organization accomplish specific goals that are beneficial to society or the environment. One example might be investing in a nonprofit dedicated to the research and development of clean energy, regardless of whether success is guaranteed.

As I mentioned, there are many more strategies associated with socially conscious investing than I’ve listed above, evidence of how seriously the investment world is paying attention to not only climate change but social impact as well. Investing with your head AND your heart can and will shape the future of investing as we know it. Knowing how to invest is only the beginning

 

DISCLOSURES:

This summary is for informational purposes only. It should not be taken as a recommendation, offer or solicitation to buy or sell any individual security or asset class. This document expresses the views of the author and such views are subject to change without notice. Morton Capital makes no representation that the strategies described are suitable or appropriate for any person.

All investments involve the risk of loss, including the loss of principal. Past performance is not indicative of future returns. A Fund’s concentration in a certain sector and lack of diversification across other sectors present risks specific to its strategy and should be carefully considered. 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.