Skip to main content
All Posts By

Donna Cournoyer

Donna Cournoyer
In Economy

Geopolitics & Stocks

With hostilities raging in the Middle East and Eastern Europe, the resultant humanitarian tragedies weigh heavily on caring individuals, even for those of us fortunate enough not to have loved ones directly affected by the strife.

As investors, our minds may also turn to the potential financial market impact of the conflicts.

I participated in a conference call recently on geopolitics hosted by Goldman Sachs. The guest speaker was Retired General Sir Nick Carter, whose last assignment was chief of the Defense Staff for the United Kingdom (the US analog is the Chair of the Joint Chiefs of Staff).

The first message for investors: geopolitical tensions are rising, and with higher tension comes higher risk.

General Clark examined the situations in Gaza / Israel / Iran; Ukraine / Russia; China / Taiwan; and North Korea – through the lens of current or potential future military engagement.

The flashpoint that concerned Clark most was Iran’s recent drone and missile attack on Israel, following the Israeli attack on the Iranian consulate in Damascus on April 1.

Clark stated that this was the first time since the founding of the Islamic Republic of Iran in 1979 that Iran has mounted a direct attack on Israel. In Clark’s words, “we’ve reached another level in terms of escalation.”

Additionally, Clark sees the Israeli / Hamas situation as near unsolvable; the Russia / Ukraine war as intractable; China’s objective of gaining control of Taiwan unmovable; and North Korea’s desire for nuclear weapons insatiable.

Clark concluded by wondering if the system of rules-based international order, put in place after World War II, will survive; and if not, what might replace it.

This was clearly a heavy report with a discouraging prognosis.

The second message for investors: bad geopolitical outcomes infrequently bring about extended stock market declines.

While far from uplifting, past experiences may serve to allay the worst fears related to the potential market impact of escalating geopolitical risk.

The table below from Goldman Sachs presents twelve hostile geopolitical events and stock market performance over three subsequent periods: the next day, 30 days later, and low point in the market following the event (which may have occurred before or after the 30-day mark).

The key take-away from this chart: adjusting portfolio positions in anticipation of a bad geopolitical outcome is a hit-or-miss strategy. In six of the twelve instances, stocks were in positive territory one month after the event.

Stock market drops concurrent with negative geopolitical events are often significant, as the low point in the chart above depicts, but the duration of the impact is impossible to know, and other influences and countervailing events can affect stock prices, too.

Also, the negative stock market impact of geopolitical events tends to be in line with normal stock market declines experienced in years that did not include a hostile geopolitical event.

Since 1980, the average intra-year stock market drop has been 14.2% (see the first chart in the previous section of this letter).

It is understandable if you are troubled by geopolitical risk and worry about how it might affect your investments. Recent events have been distressing, violent, and cause a strong emotional response for many of us.

However, from an investment perspective, remaining dispassionate is recommended. Sticking to your investment approach and your financial plan will serve you well in the long term.

-RK

 

Donna Cournoyer
In Investment Strategy

Investment Marathoners

Investing is a marathon, not a sprint. This adage may seem a bit time-worn, but nevertheless appropriate given the recent conclusion of the 128th running of the famed race in Boston.

I have had a long relationship with the sport of running, and although my lane has been distance, I’ve always admired sprinters. They approach competition with a narrow focus, execute with maximum intensity, and learn the results of their efforts in a matter of seconds.

And truth be told, I am intrigued by investment sprinters, too, who have a lot in common with track sprinters. For example, I’ve observed professional traders staying narrowly focused on their task and applying a high degree of mental energy throughout a trading session.

Typically, investment sprinters have quick reaction functions. Buying and selling tends to happen frequently under their watch, and investment sprinters try to make profits quickly while avoiding large losses.

I’m also intrigued by investment sprinters because their mental wiring and their market approach is so foreign. In philosophy and in practice, I identify with investment marathoners.

For investors in it for the long haul, lots of buying and selling doesn’t make much sense. Investment marathoners keep long-term objectives in mind. They develop a plan, stick to the plan, and expect to measure success over an extended timeframe.

Investment marathoners share the desire with investment sprinters to avoid large losses, but cutting a loss quickly isn’t part of the approach. Investment marathoners know the environment will include downturns along with market gains and can get comfortable with discomfort for periods of time.

Even though they understand the investment landscape, investment marathoners can get worn down and can become discouraged when the course gets challenging – that is, when prices go down instead of up and when portfolio values drop instead of rise.

The following two charts, courtesy of JP Morgan Asset Management, can be particularly useful in helping investment marathoners maintain perspective.

The first chart below shows what has happened each year in the US stock market for the past 44 years.

The grey bars show annual returns. The red dots show intra-year drops and refer to the largest market drops from a peak to a trough during each year.

Source: JP Morgan Asset Management

Important statistics from this first chart:

  • 10.3%: average annual stock market return
  • 14.2%: average intra-year stock market drop
  • 75%: percentage of time annual returns for stocks have been positive

When the stock market is in one of its periods of decline, the learning from this chart is worth remembering: you can expect stocks to take a tumble during the year, but there’s a high likelihood that returns will finish the year in positive territory.

The second chart shows what has happened for various asset classes over time and highlights the benefit of investing for the long term.

The green bars depict stock market performance, the blue bars bond market performance, and the grey bars performance of a portfolio of 60% stocks, 40% bonds. The bars show the range of returns over 1-year, 5-year, 10-year, and 20-year “rolling” periods, from 1950 to 2023.

For example, the left most bar considers stock market returns for all one-year periods from 1950 to 2023. The highest one-year return was 52%. The lowest one-year return was -37%.

Moving to the right, the next green bar considers stock market returns for all 5-year periods during the same 73-year timeframe. The highest annual return during any 5-year period was 29% and the lowest annual return for any 5-year period was -2%.

Source: JP Morgan Asset Management

Key points from the second chart:

  • Annual returns compress the longer you stay invested
  • The downside diminishes the longer you stay invested
  • With a long enough holding period, expect significant, positive returns

Distance running isn’t for everyone. The mind must be willing, and the body must be able to work hard to get to the finish line.

But investment marathoning is accessible to everyone. All it takes is the right plan, a commitment to stay the course, and confidence to let the financial markets do the hard work (and generate satisfactory returns) over the long term.

-RK

 

Donna Cournoyer
In College Planning

Shifting the “Dream School” Mindset

I grew up in a New England household where weekends were spent in ice rinks. I loved it! My brother was an ice hockey player, and I was a figure skater who joined my sisters in the sport each weekend (at the time, hockey for young women wasn’t an option).

I have a favorite quote from one of hockey’s greats, Wayne Gretzky, who said: “Skate to where the puck is going, not where it has been.”

I was reminded of this quote recently during a conversation I had with a gentleman at a networking event while waiting in line for a “free headshot,” a perk of being a participant in the event.

My new acquaintance had grown children, and when I told him I was a college planning advisor, he perked up and said, “Good for you!” He then began to reflect upon his experience in helping his children with their college applications.

He said he was obsessed with one outcome: the bumper stickers he would be able to affix to the family car. Not the college cost; not where his kids would be happy and thrive academically; just the school with the best “elite” reputation.

He was from an affluent suburb in Boston. He said all the cars in his neighborhood had elite college bumper stickers: Harvard, Yale, Brown, etc. His primary thought, and self-admitted anxiety thinking about college for his children, was about those bumper stickers. He said literally “nothing else mattered.”

While this gentleman had every right to his approach and opinion (every family has their own list of criteria for choosing a college) I was taken aback. But I was also intrigued because he was so animated and emphatic while telling me his story.

While bumper stickers might have a limited audience, consider the scope of merchandise a typical family will buy at the bookstore during a college tour or event. Don’t many students and parents want to wear that sweatshirt to manifest attaining admission? It’s almost like a dream board (and maybe not so different from the bumper sticker after all).

That conversation at the networking event reinforced my belief in the importance of helping parents and students move beyond the emotional part of college search.

If families think deeply about their priorities and goals and how school choice will impact their personal financial situations, the decision framework might shift.

One critical outcome may be that “dream school” may no longer be synonymous with “elite school.”

Consider a recent Bloomberg article entitled If You Didn’t Get Into an Ivy, a Public School Is the Better Investment, which claims that many elite private colleges underperform when it comes to the average student’s return on investment.

The Bloomberg News analysis of more than 1,500 nonprofit four-year colleges shows the return on investment at many elite private institutions outside the eight Ivies is no better than far-less selective public universities.

The analysis shows that a typical 10-year return on investment of the so-called “Hidden Ivies” – a list of 63 top private colleges – is about 49% less than the official Ivies and 9% less than states’ most prominent universities, known as public flagships.

These statistics are meaningful because of the high cost of attendance. For instance, a recent New York Times article commented on a situation where a newly admitted Vanderbilt University engineering student was shown an all-in price of attendance for their first year of $98,462.

As a financial advisor providing college planning, I encourage a holistic approach to the planning and decision-making process, with the goal of finding the most affordable choice that also is a great fit for the student to accomplish their academic goals, in a community and location where they will be happy and flourish.

There are so many excellent schools with significantly lower total cost of attendance and lower out-of-pocket costs compared to the often-elusive elite institutions.

Many of the alternatives will give students a four-year merit scholarship along with a great education and a wonderful experience. These institutions are p aces where students can build a tremendous foundation, lifetime friendships and mentor relationships, and gain experience to build on.

Which brings me back to Wayne Gretzky’s quote.

I recommend families move away from where college admissions goals have been: attaining admission to a brand-name, elite school.

Instead, consider where holistic college admissions planning is going:

  • acknowledging emotions
  • thinking deeply about priorities and goals
  • discovering which institutions align best with those priorities and goals
  • considering how school selection will affect student’s and parents’ long-term financial situation

Shifting the Dream School mindset and using a holistic planning approach to college search will help parents and students make the best all-around “smart choice” from their college list.

-DC

 

 

Donna Cournoyer
In Market Updates

Q1 2024 Market Review

Stocks powered ahead in the first quarter of 2024. For large company US stocks, it was the best quarterly performance since 2019, with the S&P 500 Index registering twenty two “all time high closes” during the three-month period as trading wrapped up on March 28.

Many market forecasters were constructive heading into the start of the year, but few prognosticators predicted the continuation of the powerful rally that began in late October 2023. A resilient economy, confident consumers, and excitement about artificial intelligence were reasons cited for the run-up in stock prices.

For the quarter, large company US stocks returned 10.4%. Small company stocks also rose, but the pace of increase was a slower 5%. Stocks of foreign companies returned 6%.

Bonds, however, finished in the red. Interest rates rose as inflation data disappointed. The Bloomberg US Aggregate Bond Index, the benchmark for high-quality bonds, declined by 0.7% during the quarter.

Here’s snapshot of stock and bond returns for the last five quarters:

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

Midway through April, stock markets were showing some signs of fatigue after running up so much in Q1.

As of April 19, the S&P 500 Index of large company US stocks had declined by 5% from the end of March, and the technology-heavy Nasdaq Index had fallen by nearly 7%.

Longer-term bond yields increased by about 0.4 percentage points, a sizable three-week move, which also translated to about a 5% price decline for high-quality bonds maturing beyond ten years.

-RK

Donna Cournoyer
In College Planning

2024-2025 FAFSA FORM – Continuing Issues and Delays

This 2024-2025 college application year is one for the books…

We (schools, parents and especially students) have endured delay after delay for the newly overhauled FAFSA- the Federal form for applying for financial aid, which the government uses to determine student eligibility for financial aid and schools also use to determine how they will award their own funds.

The most recent delay coming this week when the Department of Education announced, the day before the ISIRS (Institutional Student Information Records) were supposed to start arriving at schools, that they were in fact, not going to start arriving at schools until “the first half of March”. This means that for anyone who completed a FAFSA, schools are not going to have those records to start reviewing until at least mid-March. This cuts the time even more and SIGNICANTLY for financial aid offices, who will need to scramble to review the FAFSA forms and try to get their financial aid offer letters out to freshman applicants in time to decide on where to go to college by May 1. A decision which for many families, depends in large part on how much it will cost the family out of their pocket after any merit scholarships and financial aid. Families will be receiving these letters months later than usual this year.

Some of the issues are also that some students and parents are having difficulty accessing and signing the form. Due to the processing delays, there is also the issue of not being able to correct the form until the records are processed and are sent to the schools. So, if you know you have made a mistake, you cannot correct it for another few weeks at least.

First, for freshmen applying to college for fall of 2024, this creates an extra layer of uncertainty and stress, estimating that they will not know how much aid they will receive and how much they will need to pay to attend the schools on their list until likely past April 1. For their parents, even greater stress.

Second, for students returning to college, they need to know if their aid package will change, based on the overhaul in the Department of Education’s formula on the brand new FAFSA this year. For example, the loss of the “sibling discount” for families having more than one child in college at the same time.

Ways You Can Take Advantage of the Extra Time:

  • Apply for private scholarships. This is the time they are open. Search locally, with your high school guidance office and qualified search sites. See my links
  • Consider appealing for more merit scholarship money. If you have offers from competing schools, or if you know your school offers higher merit scholarships, you may have a good chance at an appeal. Schools still need to secure enrollment for their fall class of students during these delays, and if there is a chance for an applicant to deposit early, they may have incentive to increase the offer.
  • If you have extenuating circumstances, don’t wait to reach out to the financial aid offices. If you have had situation over the past year that may have affected your finances, such as a job loss, you will want to reach out the financial aid offices to ask about their process for appeals if it is not clear on their website, so that you can be prepared to send documentation when they are ready to receive it.
  • Do some assessment of your financial plan to pay for college. Although you may not have the net cost confirmed for any of your schools. Start planning for what resources you will be using to cover out of pocket costs for college over the next 4 years and make a list. Will you be using a 529? Savings? Making payments monthly to the school? Borrowing? Or a combination of the above? Start planning out what you have for resources so that when you begin getting final offers from the schools, you will know how your finances match up.

Check the websites for your school list:

Decision Dates: Some schools have or are considering changing their decision date of May 1 this year due to the FAFSA delays.

Be sure to check all the websites for the schools on your list to see if they have extended their May 1 decision to commit date.

Financial Aid process: Some schools may have created their own preliminary financial aid form due to the Department of Education delay of the FAFSA. Also, schools that use the CSS Profile (between 250-300 schools) may be sending out offers ahead of receiving the FAFSA records for applicants, due to the fact that the CSS Profile form has not changed and opened in October.

Be sure to check the financial aid pages of your school websites to see if your schools have created and require new forms or are using the CSS Profile due to the FAFSA delays.

The bottom line is that the 2020 Congressional laws passed that required significant changes to the FAFSA form with the intention of making more students eligible for aid and the form completion easier has created a lot of anxiety and uncertainty for college students and families for the 2024-2025 year as the rollout has been anything but smooth.

In light of these delays of information – essentially knowing the cost you will pay out of pocket for each school on your list – which is crucial for most families in order to decide on college, some families may decide not to apply for financial aid, thus leaving money on the table and spending more out of their pockets next year. Some schools require the FAFSA form to award their merit scholarships and/or some free grant money that is sometimes even offered to those applicants who are not eligible for need-based financial aid by the FAFSA form, in order to entice students to commit.

Of course, as in my previous articles, my advice is to weather the storm, and do the form and be more vigilant than ever staying on top of deadlines and information gathering in this last sprint in your college decision. It will be worth it in the end.

 

Donna Cournoyer
In Reading Recommendations

Measuring Your Life

For people accustomed to relying on intuition and ‘trusting their gut’, the question How Will You Measure Your Life? might seem strange. Is it possible to measure one’s life? If it is, how would one approach the task? And anyway, is life worth measuring?

On the other hand, for quantitatively oriented individuals, the idea of not measuring everything that can be measured may seem odd. Measuring provides information, information allows for analysis, and analysis enables optimization. Who doesn’t want to lead an optimized life?

Innovation expert Clayton M. Christensen spent his life studying businesses and how people behave in business settings. He was troubled by his observation that people with great potential (his Harvard Business School classmates, for example) often made choices that resulted in disharmony and unhappiness in their personal lives.

In How Will You Measure Your Life?, Christensen refrains from recommending that we measure everything in our lives that can be measured.

Rather, he suggests that we can use theories which have been rigorously examined and used in organizations all over the globe to help us with decisions that we must make as individuals.

The book seeks to answer the question: “How can I find happiness in my career?” But it gets at deeper issues, guiding us to consider what it means to lead a fulfilling life, and offering frameworks for helping the reader find fulfillment.

RK

Donna Cournoyer
In College Planning

New Year, New FAFSA

After Congress approved some major changes to the Free Application for Federal Student Aid (FAFSA) a few years ago, the US Department of Education has taken years to fully implement the changes and overhaul the FAFSA form.

The target date for release of the new form, October 1, 2023, was missed.

The Department of Education then announced a “soft launch” by December 31, meaning that the form would be open by December 31 at the latest (it opened that day for two hours), but also be intermittently closed from time to time for review and maintenance.

These fits and starts have caused students, families, and financial aid offices to play the waiting game and adjust their financial aid timelines.

New York Times columnist Ron Lieber’s article I Spent New Year’s Eve Trying to Do the FAFSA. It Didn’t Go Well, published on January 1, summed up some of the frustrations experienced by families trying to complete the FAFSA form when it opened at the end of December.

Many of the kinks, as of mid-January, now seem to have been worked out.

While families should complete the form as soon as they can, they should not worry about getting it done immediately.

The US Department of Education has indicated that it will not be sending the information to schools until the end of January at the earliest. So, it may be best to wait a week or so more to ensure a clear path to completion.

Noted Changes to the New 2024-2025 FAFSA Form:

  • Form length. The new FAFSA form is considerable shorter. The form has been reduced from 108 questions to about 46, or less, depending on your situation.
  • The custodial parent is now who contributed the most financially for the student. For divorced families, the parent required to complete the FAFSA used to be whomever the student lived with the most in the previous year. It is now whomever contributes the most financially.
  • Pretax Contributions to a retirement account (from W-2 box 12) is no longer required for untaxed income. See form for exceptions such as SEP.
  • If a parent owns a business, it must be disclosed on the form. Previously, if a parent owned a business but there were under 100 employees, they were not required to list the business value on the form. Now ALL parent-owned businesses must be listed. You should list the value after any debt.
  • 529 Accounts. Previously all parent-owned 529 accounts for any children had to be included in the investments section. Now only a 529 for the student on the application must be listed. 529s in grandparent’s or relative’s names are NOT included.
  • Students and parents are now required to give “Consent” which must be given for the Direct Data Exchange (previously called the IRS Data Retrieval). For the FAFSA to be processed, the student and parent must give “consent” which will automatically populate income information, except for a few situations.
  • Students and parents are now called “Contributors”. This does NOT mean they are required to contribute financially. The student must “invite” the parent to be a contributor.
  • EFC (Estimated Family Contribution) is now called the SAI (Student Aid Index). This is the number created by the formula to determine a student’s eligibility, based on the information on their FAFSA application which the government and schools use to award need-based aid.
  • The number of students in college is still listed on the form but is no longer considered in the eligibility calculation. If the student will have one or more siblings in college at the same time for the coming year, or has in past years, this will no longer lower the student’s SAI. The result for parents is that having more than one dependent in college at the same time does not necessarily translate to more need-based financial aid. For current students in this situation, talk to your financial aid counselor for information on how this may affect your aid.
  • Maximum number of schools you can list on the form. The previous FAFSA limited applicants to 10 schools. You may now list up to 20 schools to receive your FAFSA form.

My recommendation is for every student to complete the FAFSA form, especially in year one.

Some schools award non-need-based grants and merit scholarships only to students who complete the form. Also, this is the only way to take advantage of using the Federal Student Loans if you intend to do any borrowing for college.

To complete the 2024-2025 FAFSA form, go to https://studentaid.gov/h/apply-for-aid/fafsa and click on the link “Start New Form.”

After completing the FAFSA form, watch for an email from the US Department of Education with the “FAFSA Submission Summary” (previously called the Student Aid Report) which has information about your FAFSA application.

Also, watch for school communications from colleges your student has been admitted to and to whom they have sent the FAFSA. Schools will begin sending out financial aid offer letters once they start receiving and processing the FAFSA forms from the Department of Education. If you have any questions regarding these offers, contact the financial aid office at the school. Timelines at each school will vary, especially with this year’s delays.

If you would like information on how we can help your personal situation with our college planning service, please sign up for a free 30-minute consultation on our website.

For additional FAFSA and college planning please see our College Planning articles on our website Blog.

Donna Cournoyer
In Financial Planning

New Tax Rules for 2024

The laws that stipulate how we must handle our personal tax situation are complex and dynamic. Changes can be built into existing statutes and shifting government priorities can also lead to adjustments to the rules.

For example, SECURE 2.0, the 2022 law designed to bolster retirement savings, has over 90 provisions with different effective dates.

Staying on top of what’s new in tax, and making the most of the changes, is an important part of the financial picture for most individuals.

Below are ten key changes in tax law for 2024:

  1. Standard Deductions: Married couples get $29,200 plus $1,550 for each spouse 65 or older. Singles can claim $14,600, or $16,550 if age 65 or older.
  2. Income Tax Brackets: Income tax rates are unchanged, but the tax brackets have widened out. For example, in 2023, income from $0 – $22,000 was federally taxed at 10%, and income from $22,001 – $89,450 was taxed at 12%. For 2024, the upper bound of the 10% bracket shifts to $23,200, and the 12% range adjusted to $23,201 – $94,300.
  3. Capital Gains Tax: Tax rates on long-term capital gains and qualified dividends do not change, but income thresholds to qualify for the various rates go up. For example, the 0% rate for capital gains applies at taxable incomes up to $94,050 for joint filers and $47,025 for singles.
  4. Payroll Taxes: The Social Security annual wage base for 2024 is $168,600, which is an $8,400 hike. The Social Security tax rate on employers and employees remains 6.2%, and both pay the 1.45% Medicare tax on all compensation, with no cap.
  5. 401(k): the maximum contribution is $23,000. People born after 1975 can contribute an extra $7,500.
  6. IRA & Roth Contributions: the contribution cap for IRA and Roth accounts is $7,000 for those up to age 49. If you are age 50 older, the cap is $8,000.
  7. Roth IRA Ceilings: Contributions phase out with Adjusted Gross Income (AGI) of $230,000 to $240,000 for couples and $146,000 to $161,000 for singles.
  8. IRA Deduction Phaseouts: Couples covered by 401(k)s begin to lose a portion of the tax deduction benefit at $123,000 of AGI and lose it completely at $143,000. For singles, the range is $77,000 – $87,000. If only one spouse is covered by a plan, the phaseout range for deducting pay-ins for the uncovered spouse is $230,000 – $240,000.
  9. QCDs:The Qualified Charitable Distribution cap is indexed to inflation, so IRA owners 70 1/2 and older can transfer up to $105,000 in 2024 from their IRAs directly to charity without having to pay tax on the withdrawal.
  10. 529s: Funds in 529 education accounts can be rolled over tax-free to a Roth IRA. There is a $35,000 lifetime cap and the 529 must be open for more than 15 years.

RK

Donna Cournoyer
In Investment Strategy

The New, New Thing: A Bitcoin Story

In 1999, author Michael Lewis published The New New Thing: A Silicon Valley Story, about Jim Clark, a technology entrepreneur who helped launch the age of the internet. Also in that year, technology stocks (as measured by the Nasdaq index) rose by 86%. The following year, as the internet bubble burst, the Nasdaq plummeted by 77%

Since its launch in 2009, the cumulative price increase of Bitcoin has been astounding: a mere $100 purchase of Bitcoin in 2010 would be worth millions today.

But the year-to-year return from holding Bitcoin during the past half decade has been noteworthy due to wild price swings, more akin to the tech stock experience of the late 1990s – early 2000s. In the crypto crash of 2022, the Bitcoin price declined by 65%. More recently, the price has climbed by a similar amount.

Until this year, owning Bitcoin has been more challenging than buying stocks or bonds. Typically, Bitcoin aficionados needed to do things like create a digital wallet or open an account on a specialty crypto exchange to hold their coin.

The “New, New Thing” in 2024 is that Bitcoin can now be bought and held in a standard brokerage account or IRA, just like a run of the mill stock, bond, or mutual fund.

On January 10, the US Securities and Exchange Commission (SEC) authorized eleven applications to offer exchange-traded funds (ETFs) tied to Bitcoin.

Since the question of “can I buy it?” has been answered with the advent of Bitcoin ETFs, more investors may now be asking “should I buy it?”

We encourage our clients to think long-term and prioritize well-diversified portfolios that support their financial plans. It’s not a crazy notion to think that an allocation to Bitcoin would add to the diversity of a portfolio and might contribute to wealth creation over time.

Some market practitioners equate Bitcoin to “digital gold”. Actual gold has been recognized as a store of value for centuries due to its durability, fungibility, and scarcity. While fourteen years probably falls short of a true durability test, Bitcoin does check the boxes of fungibility and scarcity, so the digital gold claim is not without merit.

Other folks are turned off by the idea of Bitcoin because of its association with illicit transactions. Since it is possible to hold actual Bitcoin in a wallet that is delinked from an exchange and not hooked up to the internet, cryptocurrency is a favored medium of exchange for malefactors.

The question of “Should I buy it?” is best considered through a lens of personal values and preference. A more appropriate question for an advisor to answer is “Must I buy it?”

For most individual investors, some mix of stocks or stock funds; bonds or bond funds; and short-term investments are appropriate and required to meet long-term financial goals. Stocks, bonds, and short-term investments are the must-haves in a typical investment portfolio.

Stocks provide an important growth element. A stock’s price is influenced by the profitability and sustainability of the enterprise that issues it. Over the long-term, there is a high likelihood that a diversified stock allocation will exceed the rate of inflation and enable the holder to maintain or improve their purchasing power.

Bonds and bond funds deliver regular income and often act as an offset when stock prices stumble. Bonds are contractual arrangements that promise their holders income and return of principal. Short-term investment funds also include contractual arrangements and typically provide stability with modest returns.

Commodities, on the other hand, are not tied to profitability of an entity, nor are they contractual arrangements that promise a return. Commodities are economic goods with fungibility whose prices are influenced primarily by supply and demand and are often the subject of speculative activity.

As such, we typically don’t include commodities directly as elements of investment portfolios for our clients: no gold ETFs, no oil ETFs, no funds whose sole purpose is to have direct exposure commodities. Since I view it as a commodity, Bitcoin is not a portfolio “must have”.

Another twist on the cryptocurrency narrative is its treatment under the law. The Commodity Futures Trading Commission treats cryptocurrencies as a commodity; the SEC argues that certain cryptocurrencies should be considered securities; and the Internal Revenue Service treats crypto as property.

While the latest Bitcoin ETFs won’t be popping up as a constituent in our model portfolios any time soon, you should know that digital assets are being viewed very seriously as investment vehicles by many large institutional investors.

Also, cryptocurrencies offer interesting technological applications that are being explored by financial institutions and even by central banks.

At a minimum, it’s worthwhile for informed investors to have some perspective on developments in the digital asset space. If you have questions, please send them our way.

RK

Donna Cournoyer
In Economy

Polls, Politics, and the 2024 Election

The race to win the White House in November 2024 is now in full gear. For anyone who’s accustomed to reading the news, watching TV, or engaging with social media platforms, the font of information on this topic will overflow as we approach November.

At this point, the Presidential election seems to be headed toward a 2020 rematch. The outcome likely will be consequential in many areas, including for the tax and investment environment for individuals and businesses.

Recently, I had the opportunity to participate in a conference call hosted by Goldman Sachs, which featured a leader in the bank’s Office of Government Affairs.

Key takeaways on the current political situation ahead of the November elections:

  • The race for the Republican nomination will continue if Nikki Haley wins a plurality of the votes in the New Hampshire primary on 1/23; otherwise the race is “pretty much over”
  • In a Biden-Trump rematch, the third-party element is important; currently Robert F. Kennedy Jr, Jill Stein, and Cornell West cumulatively are polling in the mid-teens to low-twenties in the percentage of the popular vote
  • Third party candidate support tends to pivot toward the established candidates as election day approaches
  • In 2016, third-party candidates accounted for 3-6% of voters in battleground states; in 2020, support for third-party candidates collapsed to about 1.5% of the vote in battleground states
  • Third-party voters who pivot have tended to favor Democrats, so if third-party support stays strong, Republicans will likely be the beneficiaries
  • In the electoral college, Biden will start with 226 “highly likely” votes and Trump with 219, with 270 required to take office
  • There are seven states in the “up for grabs” category: Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania, and Wisconsin
  • In 2016, Trump won all seven of these swing states
  • In 2020, Biden won 6 of the 7, losing only in North Carolina
  • States which had the tightest margins in 2020 were Arizona, Georgia, and Wisconsin, where the cumulative margin of victory was 44,000 votes
  • The House of Representatives is down to a 2-seat Republican majority due to recent departures
  • Congressional districts are being redrawn in some areas as a result of court challenges from 2020-21, which will likely favor Democrats
  • Three Senate seats in “super-red territory” are coming up for re-election which are currently held by Democrats: in Montana, Ohio, and West Virginia
  • It seems possible that Democrats could win a majority of seats in the House, and probable that Republicans will win a majority of seats in the Senate
  • With a Trump victory, a sweep of the House and Senate is possible, which would put Republicans in control of both houses of Congress and the Presidency
  • With a Biden victory, divided government is the likely outcome
  • Presidential election years typically correspond with weaker stock market returns

RK

Close Menu