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April 2023

Donna Cournoyer
In Reading Recommendations

Happy Earth Day!

Every year on April 22, Earth Day marks the anniversary of the birth of the modern environmental movement in 1970.

While not an official holiday, many folks choose to celebrate their respect for the environment by participating in events that increase public awareness of environmental concerns.

One topic that I’ve chosen to learn more about is Environmental Justice.

Michael Regan, who currently heads the US Environmental Protection Agency, has articulated the concept well in saying: “every person has the right to clean air, clean water and a healthier life, no matter how much money they have in their pockets, the color of their skin, or the community they live in.”

In searching on the topic, I came across the book Environmental Justice and Resiliency in an Age of Uncertainty, published in 2022 and edited by Celeste Murphy-Greene, a faculty member at UVA who focuses on Sustainability and Environmental Justice.

Murphy-Greene provides a framework for thinking about environmental issues by approaching them through a social justice lens. Topics of the book include an overview of Environmental Justice, Climate Justice, Health Equity, Smart Cities, Local Clean Energy, and the role that Public Works and Public Procurement can play in promoting Environmental Justice.

Murphy-Greene says her interest in environmental issues began as a college student when she was lifeguarding in Falmouth, Massachusetts and witnessed a large amount of medical waste wash ashore after a New York City-based barge dumped its contents.

On a different pedagogical note, I recently enjoyed watching My Octopus Teacher, an Academy Award winner from 2021 for Best Documentary Feature, which provides a personal account of filmmaker Craig Foster’s interactions with an octopus.

Foster was inspired to found Sea Change Project, which is dedicated to helping people understand human inter-connectedness with the natural world and to raising awareness for the Great African Seaforest.

You can see a trailer for the film and learn more about Foster’s initiatives at Sea Change Project website.

Happy Earth Day!

Donna Cournoyer
In Financial Planning

Social Security Situation: Preparing for Potential Benefit Changes

Social Security has been around since 1935 and was designed as a contributory system where workers pay into a fund that will provide benefits when they retire.

The program has two parts: Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI), each supported by a Trust Fund and overseen by a Board of Trustees.

The Social Security Act requires that the Trustees report annually to Congress on the actuarial status and financial operations of OASI and DI Trust Funds. The latest report was released on March 31, 2023.

Issues regarding the long-term health of Social Security have been raised by the Trustees responsible for the Social Security system.

Having some perspective on the current state of the fund, and its future solvency, is important for retirees who receive benefits, and for those who expect to rely on benefits in the future.

At the end of 2022, OASI and DI were providing benefits to about 66 million people, and during the year, an estimated 181 million people had earnings covered by Social Security and paid payroll taxes on those earnings.

The total cost of the program in 2022 was $1.244 trillion, and total income was $1.222 trillion. Income comes from two sources: non-interest income (contributions from workers) which was about 95% of total income, and interest earned on investments, which accounts for the remaining 5%.

Under the Trustees’ current assumptions, Social Security’s total cost is projected to be higher than its total income in 2023 and all later years. Total cost first exceeded total income in 2021.

From an actuarial standpoint, the Social Security program remains solvent for the next ten years. The chart below from the Social Security Administration shows the projected Trust Fund balance through 2033.

The problem is that, unless changes to the system are made soon, the Trust fund reserves will be depleted by 2034 and collections from workers will not be enough to maintain the benefits of recipients.

The reason for the impending depletion is demographics: the retirement of Baby Boomers is increasing the number of beneficiaries faster than the increase in the number of workers paying into the system.

To put the Trust fund and the system on a path of long-term sustainability (which the actuaries define as the next 75 years), the Trustees suggest the following:

  1. Revenue would have to increase by an amount equivalent to an immediate and permanent payroll tax increase of 3.44 percentage points, to 15.84%;
  2. Or scheduled benefits would have to be reduced by an amount equivalent to an immediate and permanent reduction of 21.3% applied to all current and future beneficiaries
  3. Or scheduled benefits would have to be reduced by 25.4% if applied only to those who become eligible for benefits in 2023 or later
  4. Or some combination of the above

The Trustees conclude with a call to action for lawmakers to address the projected Trust fund shortfalls in a timely way so that necessary changes can be phased in gradually to give workers and beneficiaries time to adjust to the changes.

The Trustees’ sentiment of giving workers and retirees time to prepare and adjust to impending changes is prudent.

Demographics are unlikely to change quickly, and the action that Congress decides to take (or not take) is unknowable. The proverbial “can” could be kicked down the road by politicians for several years until the problems become more acute.

One way to prepare for potential future changes to Social Security benefits is to ‘stress test’ your financial plan. Our MoneyGuide financial planning software allows us to do this. The Social Security module in the software facilitates testing for a range of benefits reductions and helps you see how this affects the long-term results of your financial plan.

Susan and I recognize that contemplating negative impacts to your financial plan can cause discomfort. We’re able to model different Social Security outcomes and work with you to think through financial planning options.

 Visualizing a range of outcomes and having a plan for adjusting to different circumstances prior to any change in Social Security may ease anxiety and help you look more confidently toward the next decade and beyond.

 

 

 

 

Donna Cournoyer
In Investment Strategy

How Custodial Service Providers Keep Your Assets Safe

As the bank tempest was hitting full force in March, a few clients did reach out to me to inquire about how the money that we manage for them is kept safe. Below is a summary.

Client assets managed by Moore Financial Advisors are typically custodied at Pershing LLC, and Shareholders Service Group is a broker that also acts in an administrative capacity for client accounts.

Client assets are kept safe through the following:

  • Segregation of Assets: client assets are segregated from Pershing’s (custodian) and Shareholders Service Group’s (broker) assets. Unlike with checking and savings accounts at your bank, which are obligations of the bank, the assets in brokerage accounts, Trusts, and IRAs are legally separate from the assets of the custodian and broker that oversee them on clients’ behalf
  • Financial Strength: Pershing is part of BNY Mellon. The stand-alone financial strength of BNY Mellon is high. Two of the major credit rating agencies, Moody’s and Standard and Poor’s, assign a “AA” credit rating to BNY Mellon. (The highest ratings tier is AAA.)
  • FDIC Insurance: uninvested cash in client accounts is typically held in the Dreyfus Insured Deposits program. Dreyfus is a subsidiary of BNY Mellon. Dreyfus Insured Deposits benefit from the $250,000 Federal Deposit Insurance Corporation (FDIC) guarantee.
  • SIPC Insurance: Investments in Pershing accounts are protected by Securities Investor Protection Corporation (SIPC) coverage of up to $500,000. Pershing also provides coverage in excess of SIPC limits from commercial insurers.
  • About SIPC Insurance: this covers investors if Pershing were to fail and client assets cannot be located due to theft, misplacement, or destruction.

If you have additional questions regarding the safe-keeping of your assets, please send a message to Susan or me and we’ll gladly address your inquires.

Donna Cournoyer
In Economy

Bank Turmoil is a Tempest, Not a Tsunami

The turmoil from the mid-March banking crisis seems to have calmed down in early April.

To get a better understanding of what’s going on and how concerned we should be, it can be helpful to hear an insider’s point of view.

It just so happens that the nation’s preeminent banker, Jamie Dimon, at the country’s largest bank, JP Morgan, discussed the matter in his latest letter sent last week to shareholders.

I’ve found Dimon’s communications to be refreshingly plain-spoken for a big-deal financial person, and he has the respect of his peers, as he was Treasury Secretary Janet Yellen’s first call when problems surfaced in mid-March.

Here are key points on the current banking crisis from the JP Morgan Annual Report, penned by Dimon, that provide a degree of comfort that the March tempest is unlikely to be a precursor to a 2008-style tsunami:

  • The current crisis was the result of regulatory shortcomings and risk-management failures at a handful of banks
  • The most prominent risks were hiding in plain sight, including interest rate exposure and uninsured deposits
  • The current crisis is not yet over, and there will be repercussions from it for years to come (tighter regulation likely will follow)
  • However, recent events are nothing like what occurred in the 2008 global financial crisis (which barely affected smaller banks)
  • Back then, the trigger was $1 trillion of consumer mortgages that went bad, held by many financial institutions, and included the accelerant of enormous leverage (excess debt)
  • Today’s crisis involves far fewer players and fewer issues that need to be resolved

If you’re interested in hearing his take on the recent bank issues, you can watch Dimon’s CNN interview.

From my perspective, to be confident that a banking crises has been resolved, we typically need to see three conditions met:

  1. Government support
  2. Resolution of failed entities
  3. Passage of time (with no additional failures)

We have seen significant government support through a new Federal Reserve lending program and the swift resolution of three of the failed entities – Silvergate Bank, Signature Bank, and Silicon Valley Bank. Also a large foreign bank, Credit Suisse, was taken over by its main competitor, UBS, following governmental intervention.

As for the third condition: if summer arrives without additional failures, I’ll feel comfortable calling “all clear”.

Donna Cournoyer
In Market Updates

March 2023 Recap: Two Good Quarters

Despite recent problems in the banking sector, stocks started the year on a strong note.

The US benchmark S&P 500 gained 7.5% in the first quarter of 2023. Foreign stocks also climbed, with the EAFE Index (Europe, Australasia and the Far East) up 9%. Technology stocks had a stellar quarter, rising by nearly 21%. Bank stocks were on the other end of the spectrum, falling by more than 17%.

And bonds participated in the rally, too. A near half-of-one-percentage-point drop in intermediate-term interest rates—despite short-term rate increases by the Federal Reserve in January and March—translated to a gain of 3.2% for the Bloomberg Aggregate Bond Index, a key gauge of the US bond market.

Here’s a recap of stock and bond performance by quarter, going back to the beginning of last year.

RK

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