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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.

Staying Connected During COVID-19 – Webinar #1

Led by our Chief Investment Officer, Meghan Pinchuk, and Wealth Advisor, Kevin Rex, our first webinar on Tuesday, March 24 discussed the latest developments of the novel coronavirus (COVID-19) and its impact on the market. Below are the client questions we addressed:

  • What do all these government policy moves mean for my portfolio and the markets?
  • Should I be looking to buy or sell with everything going on?
  • How will our alternative investments be impacted?

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/400419802/9407412948

We look forward to you joining us on future webinars!

Staying Connected During COVID-19 – Introduction to a new weekly webinar

Given the current global uncertainty, our advisory team will be hosting weekly webinars to share our take on the news, policy changes, the economy and potential opportunities. Our goal is to stay connected, ease some of your fears and ensure you feel informed and empowered with regards to your financial plan. To learn more about the webinar series, please see the below brief video from our CEO, Jeff Sarti by clicking the image below or the following link: https://vimeo.com/399004159

We look forward to seeing you on the webinar and addressing any concerns you have about the market and your investments.

 

Mid Quarter Newsletter Q2 2017

Our Legacy of Stewardship

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

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

How Is Your Financial Professional Getting Paid?

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

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

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

ETFs and the Illusion of Diversification

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

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

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

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