As the Federal Reserve has continued to raise overnight interest rates, talk of the flattening yield curve and subsequent recession has been increasing among investors. And with good reason, as seen in the chart below, the U.S. Treasury yield curve has inverted before each of the last six U.S. recessions. Not a bad record for an economic indicator. But what is a flattening yield curve and why is it so apparently bad for the economy?
Mark is an experienced wealth management professional focused on helping high net worth individuals and families determine and achieve their financial goals and objectives. This involves Mark’s active participation in Covenant’s investment research effort and portfolio construction. He is also a member of the firm’s Investment Committee. Mark has worked in the financial services industry since 1988 in various positions. Prior to joining Covenant Asset Management in 2013, Mark spent 13 years at AEPG Wealth Strategies, an independent wealth manager, where he served as Chief Investment Officer. Mark received the Chartered Financial Analyst designation in 1998, and he is currently the Chairman of the New York Society of Security Analysts.
Mark has a B.S. in economics from the Wharton School of Business at the University of Pennsylvania and an M.B.A. in finance from the Haas School of Business at the University of California at Berkeley. He lives in Westfield, New Jersey, with his wife Stacey and their two sons.
With US tariffs on steel and aluminum already in effect, tariffs on $34 billion of Chinese made goods scheduled to start on July 6th and threats of more tariffs affecting almost $800 billion in total of imported goods, it is no wonder that the business media and markets are worrying more about the possibility of a trade war. While many commentators say these threats are simply negotiating tactics intended to bring our trading partners to the table, the specter of the Smoot-Hawley Tariffs and their crushing effect on global trade during the Great Depression tends to drive these worries.
On December 22, 2017, the President signed into law the Tax Cut and Jobs Act (TCJA) and sent people and CPA's scrambling to make sense of it all. We are not tax experts, and you should always check with your tax preparer, but we wanted to highlight some of the major changes and possible implications for you. While the reduction in US Corporate taxes from 35% to 21% received the most headlines, there were many changes to individual taxes. Some of the main changes are:
In the first part of this blog post, we discussed how much an investor can lose in the portfolio construction process if they don't use a good advisor as calculated in a Vanguard Group paper from 2014. We also discussed how Covenant approaches those aspects of the portfolio construction process to add that value for our clients. The parts of the study discussed previously showed a loss of anywhere from 40 basis points (0.40%) to 115 basis points (1.15%) a year depending upon the clients' tax bracket and asset mix. This did not include any value from the correct asset allocation or a total return approach, which were deemed significant, but not quantifiable. In this part, we move on to the Wealth Management and Behavioral Coaching services described in the study and that Covenant provides.
Many investors have seen studies showing that most funds do not outperform the market averages and have concluded that they do not need an advisor. If they can't beat the market why do I need them? As the Vanguard Group of Funds is closely associated with low cost index investing and do-it-yourself investing, they would be the last place you would expect to come to advisors defense. Yet, that is just what they did, coming out with a study quantifying how much money investors are leaving on the table by not using an advisor. They looked at three areas - Portfolio Construction, Wealth Management and Behavioral Coaching and found that investors could be losing about 3% points of portfolio returns after taxes and fees over time. Needless to say, because this amount is far more than what Covenant charges, we were intrigued. Because each client is different and not all strategies apply to all clients in the same proportions, or at the same time, the timing and amount of loses varies, thus limiting the authors precision to 'about 3%'. Below and in Part 2, we will summarize the study's findings and also examine how we approach these areas at Covenant to keep our clients ahead of the game.