If we have learned anything from Covid-19, it is the “equality” that we share in being subject to a virus that does not discriminate by color, gender or sexual preference. Social distancing has had an impact on nearly everyone’s psyche since humanity craves humanity. Now is the time when being faced, yet again, with prejudice, inequality, and cruelty that monumental change is needed in understanding. There is one race, the human race, respect and equality are necessary for us to face the future and its potential challenges.
There may be no better evidence in hope for a future, albeit a financial future, then the stock market which has rallied considerably from its record setting race to the bottom, creating the fastest bear market in history. The rally and the gradual reopening of enterprise and opportunity may also lead to the fastest ever economic recovery to a Recession.
Just as democracy allows you to vote your sentiments, the array of investment choices and strategies currently available to the retail investor through “thematic” investing allows you to readily invest your preferences. We have seen a large movement in ESG (Environmental, Social, Governance), i.e. socially conscious funds for the last few years that showed that a variety of investors, notably Millennials, were investing in accordance with their beliefs.
Following are two examples of thematic ETF portfolios that seek equality and diversity. NACP Minority Empowerment supports the promotion of racial equality. It uses criteria defined by the NAACP in scoring large and midcap stock in the following areas: board diversity, anti-discrimination policies, diversity programs and more. Both SHE and WOMN are gender diversity ETF’s that follow certain rules in stock-picking. In the case of WOMN, the fund considers four factors to calculate a gender diversity score for stock inclusion. These factors are: gender balance in leadership and workforce; equal compensation and work life balance; policies promoting gender equality; and commitment, transparency, and accountability to women’s empowerment.
These are just two examples, which I am not recommending but rather illuminating, that allow one to invest their hearts as well as their minds. Lately, however, we have seen along with the rapid decline of the stock market, a return to the predominant emotions that impact the markets, fear and greed. With certain sectors and stocks falling as much as 80% from their highs we saw a lot of do it yourself investors through trading platforms such as Robin Hood seeking to do some “bottom fishing” and buy stocks at these low levels. This was disappointing since it cast fundamentals to the curb and uncovered the fact that greed may displace idealism within the younger generations.
Throughout all of this, the fundamentals should not change, there are certainly opportunistic tendencies in both industry and finance, but the basics of investing and financial planning should still be the “core” of who you are and what you do. Without discipline and commitment to a long-term plan, one’s basic nature will lead to doing the wrong things at the wrong time in search of short-term gratification.
Self-evaluation is needed in light of both the easing threat of Covid-19 and the need for equality and humanity for the sake of generations to come. Relative to your financial future, we suggest the following:
Goals need to be realistic, attainable and in sync with your tolerance for risk. Lofty, far-reaching goals are a frustration rather than accessible, near-term goals which serve to motivate.
Saving isn’t investing. While bank accounts are necessary for liquidity, emergency cash and time deposits for targeting near term events such as vacations, a new car, etc. they are not investments which are targeted for longer-term success. Too much money in savings especially at rates that are well below the cost of living can easily derail your chances of financial success.
Return on assets or ROA is the backbone of decisions made for the future of a business. You should employ this same formula in how you transact your financial business and make decisions. For example, mortgage rates are near 3% for 30-year loans. Having a 30-year fixed rate this low without inflationary impact to the rate or payment may be one of the best “investments” you can make. This wise use of debt is enhanced by investing the funds not sitting in the equity of the home. Considering the low threshold of returns needed to beat the cost of the mortgage, the chances of achieving growth rates well in excess of mortgage rates are highly in your favor. This is the ROA dynamic, the ability to earn rates of return through invested assets well in excess of the cost of funds and rates of return in the equity of your home.
It is wise to seek assistance in mapping out your goals and developing a plan towards reaching them. It is important to find an advisor that has no conflicts of interest in providing genuine and objective advice. A Registered Investment Advisor is a fiduciary and obligated to always put the clients’ interests first. Choose an advisor that is agnostic in their approach so they can develop both a financial and investment plan that is suited to the client rather than befitting the advisor and their resources. An advisor that has earned multiple designations in financial, retirement and estate planning as well as committed to the fiduciary role by earning the Accredited Investment Fiduciary(AIF®) qualification should be considered for objectivity and aptitude in this important role.
To learn more about how RZ Wealth can help advise you on wealth management and your overall financial plan, please call us for a consultation at (610) 627-5921