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Donna Cournoyer

The Passage

Summer Reading Series: Fiction

The Passage by Justin Cronin

As a high-schooler, I discovered the writing of Stephen King. I have a distinct memory of a summer in the mid-1980s, where I worked evening shifts, would often return home after midnight, and read The Stand through the dark hours until dawn. Consuming what at the time may have been considered King’s masterwork was made particularly memorable because of my weeks-long, vampire-like existence.

Now deep into middle age, I’ve been drawn in by a King-like author who writes about vampires. Justin Cronin has created a science-experiment-gone-wrong, post-apocalyptic world where an engineered virus nearly wipes out humanity. The unleashed walking dead are far more treacherous (and intriguing) than zombies.

The Passage was written in 2010 (the first of a trilogy) but the subject matter manages to tap into abeyant concerns of today’s post-pandemic reality. While the plot itself is absorbing (and wonderfully haunting), the masterful writing delights. At various points, characters debate the reasons for persisting in a seemingly forsaken world. How apropos.

-Rob

North Woods: A Novel

Summer Reading Series: Fiction

North Woods: A Novel by Daniel Mason

I often find myself thinking about life and our earth on a large scale. Where do we as humans fit in with the incomprehensible and fleeting passage of time? What is my individual relationship with this world and what impact am I having on our planet? But then again, I am a dreamer.

In North Woods: A Novel by Daniel Mason, we are taken through passages of time that involve centuries, in a western Massachusetts town. The history of the inhabitants of a cabin and what becomes of the land and home is revealed over time.

Mason’s writing has a kind of magical quality which pulls you in with details of nature and wildlife and invokes a sense of wonder about small moments in time as well as vast passages of time, dispersed with some humor as well.

Through introspection, Mason examines the depths of life, love, and transgressions through the portrayal of the spirits of the inhabitants of the land (including a cougar). The mystical aspect of his story will take you to another world – a great story for a summer read.

-Donna

The Heaven & Earth Grocery Store

Summer Reading Series: Fiction

The Heaven & Earth Grocery Store: A Novel by James McBride

Chicken Hill is a run-down neighborhood of Jews and African Americans in Pottstown, PA. This is a rich, compassionate story of characters whose lives intertwine.

The story revolves around two key dramas: the institutionalization of a deaf boy in a home for the mentally ill, and the discovery of a skeleton at the bottom of a well. The author weaves a story that shows us that even in dark times, it is love and community—heaven and earth—that sustain us.

-Susan

June 2024 Market Recap: Stock Market Heat Wave

As we move into the second half of 2024, the US economic engine is chugging along.

Strong growth in employment and wages has boosted disposable income for workers. Household net worth continues to climb, pushed up by stock market and house price gains. And consumers appear poised to enjoy summer with a sunny, ready-to-spend mood.

According to JP Morgan chief strategist David Kelly: “consumer spending will likely keep growing, although more slowly, in the months and quarters ahead, suggesting that it would take a significant shock elsewhere to tip the US economy into a recession.”

With sunny skies and no recession in sight, the investment environment for stocks has been hot.

The S&P 500 index of large company US stocks returned 15% in the first half of the year, and strong performance by a handful of big tech companies contributed about two-thirds of the index’s return.

So far in 2024, the S&P 500 Index has made a record high 33 times. The Nasdaq 100 index, which has a large weighting to technology stocks, has made a record high 23 times.

Foreign stock market returns have been less ebullient but still positive. The MSCI’s Europe, Australasia, and the Far East (EAFE) Index has gained 5.8% year-to-date through the end of June.

Here’s a chart from Bloomberg that puts the current stock market rally into historical perspective.

The S&P 500 has posted an 85% advance since 2019 (red line), even despite some challenging stretches, like “Pandemic” 2020 and “Inflation Scare” 2022.

Compare this to the 238% rally during the last five years of the Roaring Twenties (black line) in the previous century, and the 220% climb of the 1990s Internet Bubble (green line).

When viewed from an historical perspective, the current bull market appears to be more run-of-the-mill than exceptional, and less likely to be cited as an example of irrational exuberance that led to an inevitable bursting of a bubble.

The bond market has been a far chillier place to invest so far this year. Short-term bond returns have been in the range of 1-3%.

However, doubts and worries persist about the direction of intermediate-term interest rates. Most recently, market participants are raising concerns about the Federal government’s budget deficit, inflation, and the outcome of the 2024 Presidential election.

Intermediate term investment grade bond yields have risen year-to-date, which means returns for many bonds with maturities beyond three years have been negative so far in 2024. If current bond market trends persist, intermediate-term bonds could post another down year, which would mean losses in three of the last four years.

Here’s a snapshot of stock and bond performance for the last six quarters:

US Stocks = S&P 500 Index; US Bonds = Bloomberg US Aggregate Bond Index

-RK

2024: Unraveling the Tumultuous Year of the College Admissions Process

Our colleague and college specialist Donna Cournoyer contributed the following update for college planning

Applying to college can be a complex and multifaceted process, including several steps and requiring careful planning and attention to detail.

The most recent yearly cycle of the college admissions process has just finished, as high school seniors and their parents have completed the years-long college preparation and detailed application process by making a financial commitment to the school they will attend for the next four years this beginning this coming fall.

The current level of complexity of this process sent some families into procrastination mode, pushing off the inevitable facing of facts. For others, it means assuming an uncomfortable level of debt.

For those who started early and bravely committed to fully engaging and digging into the process- navigating all the steps and intricacies along the way- many found themselves completely exhausted emotionally, and unfortunately for some, financially.

How did we get here? Has the craziness finally peaked with the FAFSA debacle of 2024-2025? Not likely. Although we will learn more when the process starts up again this fall with the next application season.

The college application process in 2024 has been particularly tumultuous due to several key trends and changes that have intensified its complexity and competitiveness.

Key Trends and Challenges

  1. Surge in Applications: The number of college applications has increased dramatically. This surge is partly due to the widespread adoption of test-optional policies, which has encouraged more students to apply to a broader range of schools. Applications to public institutions have seen an 82% increase since 2019-20, while private institutions saw a 47% increase​ (IvyWise)​​ (Crimson Education US)​.
  2. Early Decision and Early Action: Early application options have become more popular, but acceptance rates for these rounds have decreased. Many top universities still admit a significant portion of their incoming class through these early rounds, which makes the competition fierce.​
  3. Impact of Affirmative Action: The Supreme Court’s ruling on affirmative action has removed race and ethnicity as factors in admissions decisions. Colleges are now exploring new ways to maintain diverse student bodies, such as through supplemental essays and other holistic review strategies.​
  4. Financial Aid Delays: The rollout of a new FAFSA form resulted in a large decline in applications, and caused delays, which means students received financial aid offers much later than usual. This had a huge impact for some students and families and their ability to make informed decisions about which college to attend​.
  5. AI in Admissions: AI technology is increasingly used by colleges to streamline the application review process, including evaluating transcripts and letters of recommendation. This has raised concerns about the authenticity of student submissions, especially with some students using AI tools to assist with their essays​ (CollegeData)​​ (College MatchPoint)​.

Overall, the college application process is a significant undertaking that requires organization, time management, and support from various sources.

Strategies for Applicants

  • Broaden Your Application List: Consider adding a mix of public and private institutions, including those that might not be traditionally prestigious but offer strong programs in your areas of interest.
  • Early Applications: Apply early if you are confident about your top-choice schools but be aware of the competitive nature of these rounds.
  • Holistic Applications: Focus on creating a well-rounded application that highlights personal experiences, extracurricular activities, and leadership roles.
  • Stay Informed: Keep up with the latest testing policies of your target schools and prepare accordingly.
  • Use AI Responsibly: AI can be a helpful tool, however, be sure your application essays contain your work and authenticity.

The 2024 college application process has indeed been chaotic, driven by increased application volumes, evolving admission policies, and the integration of new technologies.

Preparing for the upcoming college admissions season: Staying informed and strategically planning your application approach can help navigate these challenges effectively.

DC

 

 

Understanding the Future of Social Security

Our colleague and MFA founder Susan Moore contributed the following update on Social Security

As financial advisors, a frequent concern we hear from clients revolves around the future of Social Security benefits. Many are understandably worried about whether these benefits will be available when they retire, especially amidst reports of potential funding shortfalls.

We’ll share below the latest projections for Social Security funding and then explore the measures being proposed to ensure its long-term viability.

Current Projections for Social Security

The Social Security program is primarily funded through payroll taxes collected under the Federal Insurance Contributions Act (FICA). However, demographic shifts such as declining birth rates and increasing longevity are leading to fewer workers supporting more retirees, which puts a strain on the system.

According to the most recent Social Security Trustees Report, the Social Security trust funds are projected to be depleted by 2035, one year later than projected in last year’s report, if no changes are made.

At that point, incoming payroll taxes will be sufficient to pay 83% of scheduled benefits. This projection highlights the need for reform to ensure that full benefits continue to be paid.

Proposed Measures to Strengthen Social Security

Several measures have been proposed by policymakers to address the funding challenges faced by Social Security. These proposals typically fall into three categories: increasing revenue, reducing promised future benefits, or a combination of both. Here are some of the most discussed options:

Increasing Revenue

  • Raise the payroll tax rate: One proposal is to increase the payroll tax rate, which is currently 12.4% (split between employers and employees), to bring more funds into the system.
  • Lift the payroll tax cap: Currently, payroll taxes are not collected on incomes above a certain threshold ($168,600 in 2024). Removing or increasing this cap could significantly boost Social Security’s funding.
  • Introduce new revenue streams: Some have suggested introducing new sources of income for the trust fund, such as taxes on certain types of unearned income.

Reducing Benefits

  • Increase the full retirement age: Gradually raising the age at which retirees qualify for full benefits could reduce the system’s expenditures.
  • Modify the cost-of-living adjustments (COLA): Tying COLA to a different index that grows more slowly could decrease the annual increase in benefits, thus saving money over time.

Combination Approaches

  • Means testing: Reducing benefits for high-income retirees could help focus resources on those most in need.
  • Balanced approaches: Some proposals suggest a balanced approach that includes both modest tax increases and benefit reductions, aiming to spread the impact across different demographics and income groups.

One thing that’s important to note: all of the proposed measures described above would impact future Social Security recipients.

None of the measures that we have seen (except for the possible limit on the annual COLA) propose changes to benefits for those who are already receiving Social Security benefits.

What This Means for You

For individuals planning for retirement, the uncertainty surrounding Social Security underscores the importance of retirement planning. Depending on Social Security alone for retirement income is increasingly risky.

Here are a few strategies to consider:

  • Increase Personal Savings: Boost your personal savings rate and maximize contributions to retirement accounts like IRAs and 401(k)s.
  • Maintain a financial plan: We work with our clients to develop their financial plans and to update those plans to ensure that they’ll be able to reach their goals and can look forward to a sound financial future.
  • Stay Informed: Keep abreast of changes to Social Security legislation and consider how these might impact your retirement planning. And don’t hesitate to let your congressional representatives know what you think!

Conclusion

While the challenges facing Social Security are concerning, especially for those who have not yet retired, remedies are being considered.

With comprehensive financial planning, we can help you prepare for a variety of future scenarios. As your financial advisors, we are here to help you navigate these uncertainties and develop a retirement strategy that ensures your financial security, regardless of what the future holds for Social Security.

SM 

Avoiding the Pain Trade

On May 22, the Dow Jones Industrial Average, one of the oldest stock indices in the US (made up of 30 “blue chip” stocks), reached a new all-time high of 40,000.

Other more broadly-based indices such as the S&P 500 index (large-company stocks) and the Nasdaq Composite index (heavily weighted toward tech stocks) also attained fresh highs in mid-May.

The stock market can be viewed as a mirror of sentiment and as a measure of value, and new highs tend to be well received by investors. Strong demand for stocks has boosted prices and has created pleasing portfolio returns.

Regarding sentiment, most Wall Street prognosticators are bullish. In fact, the ranks of Negative Neds and Nellies recently faded from two to one.

The lead strategist at Morgan Stanley, well-known for his persistent bearish views, revised his 12-month stock market target sharply higher in May. Of seven leading investment banks, JP Morgan is the only firm anticipating a significant market decline by year end.

Even though the economic and market backdrop is constructive, a contrarian would suggest that stocks are climbing a wall of worry.

 As we consider the situation at home and overseas, there’s plenty of cause for concern, including:

  • the rising costs of goods and services have made everyday living ever more expensive for consumers
  • a deeply polarized political environment in the US raises concerns about the possibility of civil disorder and the potential degradation of democracy
  • persistent conflict abroad is affecting the lives of millions

Worried investors who are overly pessimistic about the economic, political, or social landscape might be tempted to say “enough is enough.” Acting on this conviction by selling a significant portion of stock holdings likely would provide an immediate sense of relief for those seeing the glass as half full.

But this type of action invites the “pain trade”, where financial markets punish investors for their decisions, typically in the form of substantial losses or a missed opportunity for upside.

The pain trade for worried investors who sell their stocks today would occur if the stock market rally of 2023-24 proves persistent.

Nicholas Colas of DataTrek Research provides the following pointers for avoiding the pain trade (via a recently published article in Barron’s):

  • Don’t be irked by short-term losses; it’s better to endure a 20% to 30% dip, typical for bear markets, than to miss out on all of an investment’s future gains
  • Trust in the prospects of large company US stocks, which consistently deliver for investors over the long term

The adage “it’s time in the market, not timing the market, that matters” might cause a wince or an eye-roll from experienced traders. But consider the chart below, courtesy of AMG, which tracks cumulative returns of US large company stocks.

The yellow dots denote twelve major market pullbacks, starting with the Great Depression in 1929. The dark green shaded areas show the stock market rallies.

Two key take-aways:

  1. rallies tend to run on for extended periods, while sell-offs are typically sharp (and painful) but far shorter in duration
  2. the peaks historically have risen far higher during rally periods than the troughs have fallen during sell offs

Perhaps the phrase “it’s time in the market that matters” might serve as a helpful reminder of the benefits of cultivating a patient approach to investing and embracing long-term thinking when it comes to your personal financial situation.

Summing it up, DataTrek’s Colas offers the following: “In the end, the worst pain trade is being underinvested.”

RK

May 2024 Market Recap: Warming Up

April showers gave way to flowers during the first half of May.

Stock market declines seemed to have been a function of early spring. As investors anticipated clearer, brighter weather ahead, they warmed up to stocks, though the warmth faded somewhat during the final week of May.

Large company US stocks, as measured by the S&P 500 Index, rose by 5% in May. Year-to-date, US stocks are in the black by 11.3%. Foreign stocks also returned 5% in May, and thus far in 2024 have gained 7.7%.

Small company US stocks climbed by 4% last month and are up by 4.5% so far in 2024.

Treasury bond yields were stable for shorter maturities but declined slightly for longer-term maturities in May.

For the month, the Bloomberg Aggregate Bond Index, the main benchmark for US investment-grade bonds, registered a positive return of 1.7%. Year-to-date, investment-grade bonds have declined by 1.6%.

Below is a summary of May returns:

US Stocks = S&P 500 Index; US Bonds = Bloomberg US Aggregate Bond Index

-RK

 

 

Thinking in Bets

Annie Duke knows a thing or two about risk and how to manage it.

As a former World Series of Poker champion, with total tournament winnings of over $4 million, Duke draws from her experiences at the card table to share methods for embracing uncertainty and making better decisions in her book Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts.

For example, Duke contends that we, as humans, are bad at separating luck from skill. We are uncomfortable knowing that results can be beyond our control. And we often create a strong connection between results and the quality of decisions preceding them.

One of my favorite stories about the quality of decision making is told within the first few pages. Duke highlights events of the final seconds of Super Bowl XLIX in 2015. The Seattle Seahawks, with twenty-six seconds remaining and trailing by four points, had the ball on second down at the New England Patriots’ one yard line.

The Seahawks had three chances to walk the ball over the goal line, and a touchdown would likely have sealed the victory. But the Seahawks coach, Pete Carroll called for a pass. The Patriots intercepted and won the game.

Carroll was vilified by the press the next day. The Seattle Times opined that it was “the worst call in Super Bowl history.”

But considering clock management and end of game considerations, Carrol’s call was defensible.

Also, empirical evidence supported the call. In the previous fifteen seasons, the interception rate in that situation was about 2%. The bottom line was that it was a good decision with a bad result.

Duke tells us that Pete Carroll was a victim of our tendency to equate the quality of a decision with the quality of its outcome. Poker players call this “resulting”. It is a routine thinking pattern that trips up most of us. Drawing an overly tight relationship between results and decision quality affects our decisions every day.

As a Pats fan, I was certainly pleased with the outcome of that game.

More importantly, though, the lessons Duke teaches throughout her book are useful for developing a better understanding of the behavioral aspects of decision making and can be directly applied to investing and risk management.

-RK

Estate Plan Refresh

Spring cleaning season is upon us. As the weather warms and the days lengthen, we typically have a higher level of motivation to clean and refresh our living spaces.

This is also a good time to consider an Estate Plan refresh.

As situations in life change our estate plans should be updated. For example, my oldest and middle sons are now in their mid-20s, and we’ve used this as a trigger to review our estate plan and revise certain elements of it.

It’s advisable for every estate plan to contain the following four legal documents:

  1. Will: specifies how a person’s assets should be distributed after their death, and includes an executor who will manage the estate and ensure the will is carried out as written.
  2. Durable Power of Attorney: grants another person the authority to make financial decisions on behalf of the individual if they become incapacitated.
  3. Medical Power of Attorney(aka Health Care Proxy): grants another person the authority to make medical decisions if the individual is unable to do so themselves.
  4. Advance Directive(aka Living Will): specifies an individual’s preferences regarding medical treatments they want to receive or refuse, particularly concerning end-of-life care.

Other elements of estate planning include:

  • Trusts, which can be used for various purposes, such as minimizing estate taxes, protecting assets from creditors, or managing assets for minor children.
  • Beneficiary Designations, which allow an account owner or policy holder to specify who will receive the assets in those accounts directly upon the holder’s death, bypassing the probate process.
  • Guardianship Designations, which allow parents to name a guardian to care for minor children or dependent adults if the parents or current guardians are no longer able to do so.
  • Letter of Intent, which is a non-binding document intended to guide the executor or beneficiaries on the personal wishes regarding the distribution of assets or funeral arrangements.

If you need help with sorting through estate planning issues, or thinking about how to go about a refresh if you haven’t updated your plan in some time, the two guides provided below are a good place to start (click on the images to download a pdf).

RK

Issues to Consider When Creating an Estate Plan

Issues to Consider When Reviewing an Estate Plan