5 Tips For Home Buyers In 2021

Contributed by: Angela Palacios, CFP®, AIF®

Real Estate Boom: The Perfect Storm

For many investors our home is one of our biggest assets.  Over the past year, we have been stuck inside of our biggest asset nearly 24/7.  You’ve heard the saying “Distance makes the heart grow fonder.”  This seems to apply to our home for many of us.  Over the past year, companies like Home Depot or Lowes have seen success because we nowhere to spend money except on home projects.  Others have spent so much time at home they have outgrown it or find they want different things from their home.  This has resulted in one of the hottest home real estate markets since 2005.  A recent Zillow survey shows 1 in 10 Americans have moved in the past year!  I saw the first open house in mid-April in my own neighborhood and there was a steady line of people going in and out of the house all afternoon, cars were lined up down the street!

Buyers are competing against each other in a frenzy putting offers on homes 10% or more above asking prices and eliminating contingencies, offering free rent etc.  Doing anything they can to have their offer move to the top of a sellers list.  Home prices are up 15% in the last year alone and houses are only staying on the market for a few days.

Low interest rates are another catalyst, yet again.  According to bankrate.com, 30 year mortgage rates are well below 3% as of April 13th, 2021.  This is lower than they have ever been making homes more affordable (at least until prices were driven up).  Also, don’t discount the stimulus money potential home buyers may have been banking!

Lastly, and probably one of the biggest behind the scenes driver of this housing market, is the fact that home building never recovered after the 2008 financial crisis. 

According to the Census Bureau 991,000 single-family homes began construction in 2020.  This is the 9th year in a row that the number has increased.  However, when you consider back in 2005 the all-time US record for new home starts was 1.72 Million we are still far off the pace set over a decade ago!

As one of our largest generations, millennials, are starting families they are exploding onto the scene ready to buy homes.  After 2008, the home building industry hasn’t been able to build these cheaper entry level homes as the price of inputs has gone up so there is very short supply.

So what can a home buyer do for an edge today?

1. Get preapproved for a mortgage – an offer that is contingent upon this will likely fall to the bottom of the list

2. Have your down payment ready PLUS! – if you really want a home you may need to come up with additional money to put down if the bank doesn’t appraise the home you want for the price you have to pay

3. Don’t forget the home inspection – but your bidding competitors might forego this to make their offer look better so consider bringing a general contractor or someone knowledgeable in home repair projects you know with you to look at the house

4. Act quickly – reach out first thing in the morning for an appointment if you see a home listed for sale

5. Know someone in your desired neighborhood?  Ask them to post on the neighborhood Facebook page to see if anyone is selling soon.

Angela Palacios, CFP®, AIF®, is a partner and Director of Investments at Center for Financial Planning, Inc.® She chairs The Center Investment Committee and pens a quarterly Investment Commentary.

“Do Good at Work” A Center Book Club Discussion

Contributed by: Sandra Adams, CFP®

Our Center team took on the challenge of a different kind of book with this quarter’s book club discussion, choosing to read Brea Boccalandro’s new release Do Good at Work: How Simple Acts of Social Purpose Drive Success and Wellbeing.

The general premise of the book was to offer practical advice on how to make your work life more meaningful by job purposing — making a meaningful contribution to others or a social cause as part of the workplace experience. Studies show that we work harder, longer and happier when we pursue social purpose. And it doesn’t matter what position we hold in an organization — anybody can job purpose their own job.  We can all use our own jobs for good and be proud that our job matters.

Some Center Team members share their thoughts below:

“Going forward, this book has helped me think more intentionally about connecting the work we do to a larger purpose.” — Lauren Adams, CFA®, CFP®

“My key takeaway from the book is that small acts make a huge difference. No matter what your job is you can find fulfillment.” — Kelsey Arvai, MBA

“Two things that I learned:  (1) Leave ample ‘time’ for the important things in work and life; and (2) Most people are inner givers, but some need to be taught.”  — Matthew E. Chope, CFP®

Our Center book discussion group had interesting conversations around “Do Good at Work” and these concepts and enjoyed applying them to the work we do with each other, with our clients and with the community. We have already begun to apply the concepts we discussed in our book group and have several other ideas in the works to apply in the near future.

Sandra Adams, CFP® is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

The Center Social Strategy: How We Construct Values-Based Portfolios

Contributed by: Jaclyn Jackson, CAP®

In honor of Earth Day, we’ve used the last couple of weeks to highlight environmental, social, and governance (ESG) investing.  We began by explaining why ESG investing has grown in popularity.  Then, we explored the variety of approaches used to support values-based investing.  This week, we’ll cap our blog series with a Q&A style discussion about how The Center designs social strategies.

What are the first steps of building a values‐based investment strategy?

Construction fundamentals form the foundation of any investment strategy. First, we assure that asset allocation aligns with investment time horizons and investment goals. Even the most conservative research attributes 40% of investment performance to asset allocation. Liberal evaluations attribute as much as 90% of performance to asset allocation. Another fundamental philosophy applied to the construction process is being fee sensitive. The reality is that investment costs add up and the compounding effect of those costs diminish returns. Therefore, considering the costs of values‐based funds is a vital part of developing social strategies. In short, values‐based investing adds layers to the construction process, but it certainly does not change the foundational layers of that process.

What’s the difference between ESG Investing and Socially Responsible Investing (SRI)?

A: In the past when investment managers tackled values‐based investing, many used Socially Responsible Investing (SRI) methods. SRI takes a hard stance on eliminating industries from one’s investment strategy that do not match their ethics. However, there are consequences for taking such a black and white investment approach. Research has shown that completely eliminating industries from investment strategies undermines diversification and ultimately, erodes longevity. We strive to set clients up for the best possible outcomes (from a financial and values alignment perspective in this instance). For that reason, we prefer ESG investing; it has a values‐driven agenda, but doesn’t compromise performance (because investors can maintain diversification). At the end of the day, we want you to both uphold your values AND be able to retire. Our goal is to provide strategies that include longevity and diversification while protecting your values.

How we sift the wheat from the shaft when it comes to choosing ESG funds?

ESG investing is gaining popularity. As a result, we are seeing more and more ESG funds on the market. On one hand, it helps value‐aligned investors with diversification. On the other hand, it can set the stage for trendy, superficial products that don’t truly meet the needs of values‐aligned investors. To combat this, we make an effort to work with companies that have a reputation for walking the walk. Companies like Parnassus Investments, PAX World Funds, and Calvert Research & Management are companies that have demonstrated a longstanding commitment to values‐based investing. They actively engage with companies to improve behavior. Pax, for example, uses its shareholder voting power to advocate for better company governance.

How are ESG product inconsistencies navigated during the strategy construction process?

When faced with complex decisions, we ultimately consider what brings the most value to clients.  Last week we learned, all ESG funds aren’t created equal.  Values-based funds can excel by some measures, but fail by others.  It’s a tough negotiation to build a strategy and as a result, there is some give and take involved.  When faced with complexity, we launch internal research initiatives to identify best practices.  Ultimately, data dictates what we believe is the right thing to do for the overall strategy.

Admittedly, we’ve only scratched the surface of how The Center develops social strategies.  Luckily, the conversation doesn’t have to end.  We are happy to chat more about our process and support you in integrating values into your investment plan.  We hope you enjoyed our ESG blog series and have a Happy Earth Day!

---

All investments are subject to risk, including loss. There is no assurance that any investment strategy will be successful. Asset allocation and diversification does not ensure a profit or protect against a loss. It is important to review the investment objectives, risk tolerance, tax objectives and liquidity needs before choosing an investment style or manager. Sustainable/Socially Responsible Investing (SRI) considers qualitative environmental, social and corporate governance, also known as ESG criteria, which may be subjective in nature. There are additional risks associated with Sustainable/Socially Responsible Investing (SRI), including limited diversification and the potential for increased volatility. There is no guarantee that SRI products or strategies will produce returns similar to traditional investments. Because SRI criteria exclude certain securities/products for non-financial reasons, utilizing an SRI investment strategy may result in investment returns that may be lower or higher than if decisions were based solely on investment considerations. Utilizing an ESG investment strategy may result in investment returns that may be lower or higher than if decisions were based solely on investment considerations. Raymond James is not affiliated with and does not endorse the opinions or services of Parnassus Investments, PAX World Funds, and Calvert Research & Management.

The Final Four 'Stocks': A Center Spin-Off Competition

Contributed by: Jeanette LoPiccolo, CFP®

To celebrate the annual college basketball tournament, The Center Team hosted an internal spin-off competition. We set aside our favorite teams and adopted individual stocks instead. You may be thinking – that sounds kooky! It is a bit. Our celebration is a mash-up of internal team education, some charitable giving, and a bit of friendly competition. 

How It Works

Our investment strategies contain mutual funds and ETFs that are comprised of individual stocks. The stocks are our basketball teams. Nick Boguth, our trusted portfolio administrator, highlighted 30 of these stocks within our carefully chosen strategies. Each stock was then selected by a team member and entered into our March “Market” Madness brackets. While the Center takes a long-term approach to investing, we are tracking these stocks for a short period just for fun. The top four winners will receive a donation to their favorite nonprofit organization.

To kick off our competition, our amazing team members, Lauren Adams, Nick Boguth, and Jaclyn Jackson led a Zoom presentation on the fundamentals of stock investing, valuations techniques, and where those 30 stocks fit within client portfolios. It was a great opportunity for all team members–not just those in investment or planning roles—to “check under the hood” of our most commonly used investments to see the stocks that help determine the fund’s performance. Each team member then selected their best guess to “win”. The Center will donate $1,000 to the final four nonprofits. Go team!

Our Final Four Winners

1. Josh (HD), Alex's Saints Foundation

2. Kelsey (TGT), Ruth Ellis Center

3. Sandy (JNJ), Haven (Oakland County)

4. Matt T. (LB), Methodist Children's Home (Redford, MI)

P.S. Want to know more about The Center’s charitable giving? 

Check out our Center Cares page. Our internal Charitable Committee is made up of 6-8 team members who help coordinate charitable giving activities, volunteer events, and promote donations of our time and talent to local nonprofits. We believe in supporting our local community, building relationships with nonprofits, and promoting financial education to underserved communities.

Jeanette LoPiccolo, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.® She is a 2018 Raymond James Outstanding Branch Professional, one of three recognized nationwide.

The RJFS Outstanding Branch Professional Award is designed to recognize support professionals in RJFS branches who contribute to the success of their advisors and teams. Each year, three winners are selected and recognized during this year's National Conference for Professional Development. To be considered for this award, Branch Professionals must have been affiliated with Raymond James for at least one year and could not have won the award in the past.

Q1 2021 Investment Commentary

Contributed by: Center Investment Department

April 2021 - The Center Investment Team provides market feedback for the first quarter.

Rotation. The transformation that turns a figure around a fixed point in mathematics.  So far 2021 has been a story of rotation for markets.  Two of the worst sectors in 2020, energy and financials, have become the best performing sectors so far in 2021.  If you looked at your December 31st statement and made changes based on return only – you would have missed significant gains…an old but good lesson that past performance isn’t necessarily indicative of future returns.

Last year technology benefited the most from the pandemic as people shopped from home, worked from home and looked for entertainment at home.  This year markets have been influenced heavily by the deployment of vaccinations and the hope that we can return to normal soon.

Google trends show increased interest in searches for flights and hotels which is an early sign of pent-up demand for travel that will follow in coming months.

Year to date, through 4/1/2021, a diversified portfolio made up of 40% S&P 500 Index, 20% MSCI EAFE Index and 40% Barclays US Aggregate Bond index is up about 2.4% showing a nice start to the year.  The Federal Reserve has reiterated they are “not even thinking about raising interest rates” according to Chair Jerome Powell.  Despite that, the market has pushed long-term rates higher, pricing in several rate increases before the end of 2023 despite the Fed chair’s messaging.  This has created a challenging return environment to longer dated bonds but results in more attractive interest rates today than we have witnessed in a while.

Economy

Inflation remains muted although we are seeing small pockets due to supply chain disruptions.  Between bottlenecks on the west coast and the blockage of the Suez Canal, it takes goods longer and longer to reach our shores.  A lack of velocity of money continues to be a headwind to higher inflation and the main reason why we haven’t seen it pick up substantially even though the supply of money has grown drastically with monetary and fiscal stimulus. As long as banks don’t have a large incentive to loan money (via higher interest rates) inflation may continue to be muted. 

Initial jobless claims, an early indicator for the direction of unemployment, have dropped to the lowest level recently since the pandemic began.  This should support a continued decline in the unemployment rate.

Government and Stimulus

The American Rescue Plan Act of 2021 was signed in law this past quarter.  This resulted in stimulus checks to the public.  Check out our recent blog for more details. These checks are anticipated to be spent rather than saved.  Check out the graph below showing the spending spike in January after the $600 check was received.  The additional $1,400 checks started getting delivered the week of March 17th.  I expect we will see another spike in consumer spending for March and April.

President Biden hasn’t wasted any time turning attention to the next stimulus plan in the form of the infrastructure bill.  It is likely this bill will not get passed unless mostly “paid for” by other means than deficit financing.  Bargaining on tax hikes has already started in Washington, at least behind the scenes.  It’s going to be a long process, but we can say with high conviction that taxes will likely increase at the corporate and individual levels.  We continue to watch how this will affect markets and you, our clients.  

Impact of Tax Reform on the Stock Market

In wait of details around the Biden administration’s tax reform, which is speculated to increase the corporate tax rate from 21% to 28% and increase GILTI tax rate (foreign tax rate) from 11% to 21%, many are pondering the implications of change on the stock market.  Portfolio strategists believe growth stocks will be most impacted by tax reform.  Some economists estimate that a 28% tax rate could decrease corporate earnings by 9% in 2022.  However, we have to do a bit of perspective-taking before jumping to conclusions about what this means for investors.

1)   Tax reform must go through Congress.  Economists don’t believe a 28% tax rate will pass through congress.  In fact, Goldman Sachs and UBS Financial Services assume a 25% tax rate will pass.  Goldman believes that may look more like a 3% corporate earnings clip, while UBS believes it may be 4%.  Either way, that is much more modest than the 9% some are considering with a 28% tax rate. 

2)   Keep in mind, many forecasters are tempering market expectations already for S&P 500 company profits in 2022.  If the tax hike is less than expected or delayed from the expected timeline there could still be a catalyst for robust market returns in 2022 even with corporate tax rate increases.

3)   Tax reform may not thwart economic growth.  Based on what Biden has proposed in the past, some of the proceeds of tax increases will probably go towards infrastructure spending.  Note: that could help balance the impact of increased tax rates because infrastructure spending usually expands the economy.

4)   Investors are agile.  If growth positions are suspected to be impacted most by tax reform, investors can adjust their strategies to include companies best equipped to handle tax changes.  Not to mention, some companies may even issue special dividends during this time.  When Barack Obama was re-elected in 2012, companies suspected tax hikes (which never came to fruition).  Subsequently, 20 of them issued special dividends. All that to say, there may be some opportunity for investors to pick up investment income.

5)   The last and most important thing to understand when considering the implications of tax reform on the stock market is that historically, there isn’t much correlation between stock market returns and tax reform.  As demonstrated by the chart below, the S&P 500 has been up when taxes both increase and decrease.  Clearly, there is opportunity to meet investment goals no matter the tax policy, so investors should not stray from investment discipline.

Other Headlines: SPACs

More SPACs (Special Purpose Acquisition Company) were created last year than the previous TEN years, and interest in these “blank-check companies” continued to climb in the first quarter of this year. In fact, more money has already been raised in one quarter this year than all of last year’s record year. Here’s a quick look at what they are and why they are taking off. 

First, what is a SPAC? It is a public shell company that raises money to buy a private company. The basic steps look like this:

1. Manager creates a SPAC

2. Investor puts $10 into it

3. Manager buys part of a private company for $10

4. The private company merges with my public SPAC, and boom – you own $10 worth of a company that is now public (OR you think I picked a bad company, and you take your $10 back).

On the surface it seems like a sweet deal; you either get a piece of a hot new company, or you take your $10 back. There are some unique risks to SPACs, though. The big one is obviously that after the merger you are typically left with a small, unproven company. Smaller, private companies are typically quite risky. The company’s stock price might not go up after it becomes public. It might even fall 50, 60, 70%. Ouch! Also, if you don’t like the deal after it is announced, you just missed out on whatever returns you would’ve had elsewhere. Last year, the S&P 500 returned almost 18% (almost 70% from the market bottom on March 23rd)...many investors sat in a SPAC all year only to reject the deal and missed out on huge potential gains.

There’s no definitive reason why SPACs are taking off, but it does show that there are investors willing to take on a high-risk investment. Maybe there is excess cash in the markets, investor exuberance, something to do with low-interest rates, high valuations or low return expectations elsewhere, or confidence in big name SPAC managers; but whatever it is, it has been a lucrative undertaking for those creating the SPACs as the costs paid to the managers/sponsors are not cheap.

Portal Updates

Just a reminder that we have a Center for Financial Planning Inc. app available in the app store for your investment portal!  If you don’t have access to the portal yet, please reach out and we can set this up for you!  Also, we now have the capability to allow you to aggregate your other accounts in this portal for a complete view of you assets in one place!  If you want to learn more, check out our tutorial videos here.

As always, if you have questions please don’t hesitate to reach out to us!  Thank you for the continued trust you place in The Center!

Any opinions are those of the author and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Diversification and asset allocation do not ensure a profit or protect against a loss. Dividends are not guaranteed and must be authorized by the company's board of directors. Special Purpose Acquisition Companies may not be suitable for all investors. Investors should be familiar with the unique characteristics, risks and return potential of SPACs, including the risk that the acquisition may not occur or that the customer's investment may decline in value even if the acquisition is completed. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not a guarantee or a predictor of future results. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Not All ESG Funds Are Created Equal

Contributed by: Kali Hassinger, CFP®, CDFA®

 

If you’ve read last week’s ESG blog, you should be familiar with the basic ideas driving ESG investing and aware of the recent investor rush to ESG investment funds.  Although 2020 was full of unforeseen circumstances, the trend to Sustainable and Responsible Investing has been building over many years. 

In the past, ESG was often used interchangeably with SRI, or Sustainable and Responsible Investing.  In reality, they are not exactly one in the same.  ESG analysis creates a set of standards used to screen investments through Environmental, Social, and Governance criteria.  Almost all Sustainable and Responsible strategies use at least one of the E, S, or G factors within their analysis, which is perhaps why the ESG abbreviation seems to have taken hold in recent years.  However, there are four prominent Sustainable and Responsible Investment approaches that are most often used to develop a portfolio or mutual fund.

Best-In-Class (Positive) Screening

This strategy involves investing in companies or sectors that have the best, or most positive, ESG performance relative to their peers.  The hope is that the investments selected in a best-in-class process will be able to handle unexpected changes regardless of the industry.  However, one criticism is that this includes all industries and sectors, often incorporating gas, oil, and mining companies, as long as they are handling ESG factors better than their peers.  Some refer to this as the “least bad” approach, as opposed to the best.  This is a good option for those who are afraid to miss out on returns by removing investments due to ESG factors.

Exclusionary Integration

Negative screening is what many so often associate with ESG investing.  This is most likely because it one of the oldest screening approaches and was often guided by religious beliefs with the investments eliminated through this process often referred to as “sin” stocks.  This approach, however, has evolved over the years to be less explicitly aligned with religions.  Now, exclusionary screens work to avoid companies based on more ESG related factors, such as fossil fuels, animal cruelty, and weapons production.  This approach is appropriate for investors who have specific ethical or religious motivations and want to be sure that their money is invested in a way that aligns with their beliefs.

ESG Integration

The ESG Integration approach involves using environmental, social, and governance factors to make decisions within a traditional financial analysis process. This approach does not prohibit investments in any particular sector or industry, and it searches to find value and opportunities by combining ESG information with conventional financial information. This method can include companies who have historically performed poorly in relation to ESG factors but who are working to improve on an environmental, social, or governance issue.  Notice the usage of OR in the last sentence.  This means that companies do not need to score or screen well in all three factors to be included or considered within an ESG integration fund.  This flexibility provides a vast investment universe and can be more palatable for investors who are still skeptical of ESG investing.

Sustainability-Themed Investing

Sustainability-themed investing often develops a portfolio aimed at solving a specific environmental or sustainable issue.  Within the selected theme, such as clean technology, climate change, animal welfare, or green energy, analysts will work to determine the strongest companies who positively represent this issue.  This allows investors to focus their resources on specific trends and to invest in companies who reflect those same beliefs in their business practices.

Although we have discussed these approaches as four separate methodologies, in reality, most ESG mutual funds use a combination of several or all of these tactics to build their portfolio.  This combination, which less frequently excludes specific industries or companies than it has the past, allows for more flexibility, which can translate to more opportunity for investors.  Many believe that companies who are focusing energy and time on ESG factors will be more poised for future success.  Are you interested to know how The Center develops and manages our ESG strategies?  Jaclyn Jackson, CAP® our firm Portfolio Manager will provide some insight next week!

---

Kali Hassinger, CFP®, CDFA® is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Sustainable/Socially Responsible Investing (SRI) considers qualitative environmental, social and corporate governance, also known as ESG criteria, which may be subjective in nature. There are additional risks associated with Sustainable/Socially Responsible Investing (SRI), including limited diversification and the potential for increased volatility. There is no guarantee that SRI products or strategies will produce returns similar to traditional investments. Because SRI criteria exclude certain securities/products for non-financial reasons, utilizing an SRI investment strategy may result in investment returns that may be lower or higher than if decisions were based solely on investment considerations. Investors should consult their investment professional prior to making an investment decision.

ESG Investing: Why Everybody Is Talking About It

Contributed by: Jaclyn Jackson, CAP®

According to CNBC, almost 1 in 4 dollars is going into Environmental, Social, and Governance (ESG) funds this year.  Even before 2021, the combination of ethical provisions and competitive performance turned many heads towards ESG investments.  I aim to explain what the big fuss is about and why ESG investments are gaining traction.

Investors Are Talking About It

To be clear, the March 2020 downturn was no picnic (for anyone).  However, investors who had stake in environmental, social, and governance (ESG) investments managed the economic downturn with greater resilience.  Leading research firm, Morningstar, reported that during March 2020, “sustainable funds dominated the top quartiles and top halves of their peer groups.  Sixty-six percent of sustainable equity funds ranked in the top halves of their respective categories and more than a third (39%) ranked in their category's best quartile.”  Compared to peers, ESG funds pulled top rankings.

Not only did peer to peer comparisons look good, but index comparisons proved more robust too.  In the same study, Morningstar compared 12 passive ESG funds in the large-blend category to a traditionally passive fund. They reported, “For the year through March 12, all 12 ESG index funds outperformed”. What’s more is that fees were included in this study.  While the ESG passive funds compared were more expensive than the traditional passive fund, they still managed to outperform.  Impressively, the trend held with international and emerging market index comparisons…and everybody is talking about it! 

Including the world’s largest investor/asset manager, BlackRock, who’s CEO challenged corporations to consider the impact of climate change on business models.  In 2020, CEO Larry Fink announced BlackRock would incorporate ESG metrics into 100% of their portfolios.  The asset manager also pledged to produce data and analytics to punctuate why considering climate change should be an investment value. 

Yellen And Powell Are Talking About It

Investors are not the only people concerned.  In wake of recent natural disasters, Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell are working to assess the risks climate change poses to the health and resilience of the financial system.  Their consensus implied a concentrated effort to monitor financial institutions and their exposure to extreme weather events.  Leading the charge, Fed Governor Lael Brainard, recently announced the Financial Supervision Climate Committee (FSCC).  Brainard is a proponent of using scenario testing to understand banks’ ability to survive hypothetical climate catastrophes.  The FSCC will focus on developing evaluation processes for climate risks to the financial system.

Why Everybody Is Talking About It

While many people acknowledge the ethical appeal of ESG methodologies, they may not fully appreciate the businesses appeal that underpins stock performance.  Business litigation risk provides a clear example.  The Financial Analyst Journal featured a study that explored the relationship between ESG performance and company litigation risks.  Analyzing US class action lawsuits, researchers found, “a 1 standard deviation improvement in the ESG controversies of an average company in the sample reduced litigation risk from 3.1% to 2.4%”.  The study also asserted that companies with low ESG performance experienced market value losses ($1.14 billion) twice the size of companies with high ESG performance.  Further, the study integrated their findings with a trading strategy and concluded investors benefitted from lower litigation risk.

It doesn’t stop with litigation risk.  There are also links between healthy corporate governance and market returns.  As You Sow, a nonprofit promoting corporate responsibility, has been tracking S&P 500 companies with excessively compensated CEOs since 2015.  They collaborated with R. Paul Herman, CEO of HIP Investor Inc., to do performance analysis based on their tracking. Herman determined, “…shareholders could have avoided lagging returns by excluding companies that keep making the list for excessive CEO pay”.  Companies without excessively paid CEOs significantly outperformed companies with excessively paid CEOs.  The former generated 5.6% in annualized returns compared to the latter at 1.5%.  What’s astonishing is that the report noted, “The performance gap due to excessive compensation equates to approximately $223 billion in shareholder value lost.”  How are companies without overpaid CEOs edging out competitors?  Instead of overpaying CEOs, more resources can be dedicated to research and development projects, dividends to shareholders, or equitable pay for employees; things that advantage company profits and support positive investor outcomes.

Are You Talking About It?

There is definitely a case for the merits of ESG investing.  It is no wonder folks are talking about it.  Are you interested in the conversation?  If you’ve followed trends in ESG investing and are considering adapting ESG strategies into your portfolio, The Center is here to help.  Ask your advisor about the Center Social Strategy; they would be happy to talk about it with you.

---

Jaclyn Jackson, CAP® is a Portfolio Manager at Center for Financial Planning, Inc.® She manages client portfolios and performs investment research.

This material is provided for information purposes only and is not a complete description of the securities, markets, or developments referred to in this material. Any opinions are those of the author and not necessarily those of Raymond James. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Utilizing an ESG investment strategy may result in investment returns that may be lower or higher than if decisions were based solely on investment considerations. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results.

Am I Spending Enough Or Saving Too Much?

Contributed by: Kali Hassinger, CFP®, CDFA®

No you didn’t read that title incorrectly.  After decades of consistent and focused saving, how do you change your mentality to feel comfortable spending what you’ve worked so hard to accumulate?  Good savers spend decades developing the discipline to save, plan, and minimize debt, all for the ultimate goal of reaching financial independence and freedom.  However, when it comes time to use those hard-earned funds to support your retirement lifestyle, it can be a difficult transition.

The Center defines financial planning as a coordinated and comprehensive approach to reaching your financial goals.  It necessitates an appropriate balance between spending now and investing for the future.  That is a difficult balance to maintain, and without truly understanding your current resources and future needs, it is easy to miss the mark.  Without professional analysis and review, many either spend too much now and jeopardize future goals or have save too aggressively and end up unnecessarily sacrificing current quality of life. 

In planning, we can quantify what it takes to meet future financial goals, and make sure that we are doing what is needed to help reach those objectives.  In some cases, that knowledge can provide the freedom to actually reduce savings.  Beyond just allowing increased spending, this can also provide the opportunity to pursue passions as opposed to income.

When finally reaching that retirement finish line, however, turning your savings into income can be a daunting task.  Pulling from a balance that you’ve worked years to accumulate and build up can be uncomfortable, especially if you don’t know how much you can safely withdrawal without jeopardizing your long term financial security.  If you’re like many of our clients, it isn’t uncommon to react to this discomfort by under-spending and unintentionally accumulating money throughout retirement. 

Life is all about balance.  In this example, it’s about protecting your financial future while also enjoying life now.  If you’re in the enviable position of having more than you need for retirement, making a meaningful plan for the excess can help to ease the reluctance to spend.  Whether it is gifting, creating a financial legacy, or granting yourself permission to indulge a bit, if it brings you joy, it is worth considering.  Of course we would not recommend spending money frivolously, but, the ultimate goal is to pursue areas of interest because they are meaningful and important to you - unconstrained by financial concerns.  Isn’t that true financial freedom?  

Kali Hassinger, CFP®, CDFA®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

---

Opinions expressed are not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Past performance is not a guarantee of future results. Investing involves risk and investors may incur a profit or a loss.

The Benefits Of Working With An ‘Ensemble Practice’

Contributed by: Josh Bitel, CFP®

Financial planning practices come in all shapes and sizes, but perhaps the two most common arrangements are solo practices and ensemble practices. Solo practices are normally led by a single advisor who calls the shots, while ensemble practices are team-oriented firms, all working toward a common goal. The Center identifies with the latter.

An ensemble practice is structured with multiple advisors under the same roof. This allows for constant sharing of ideas, best practices, strategies, and even sharing of resources. The Center has a 2 hour meeting every Monday for just this purpose. Our planners at The Center, all with unique expertise, get together to eat lunch and share client cases, tough questions, interesting reading pieces, and maybe a few jokes here and there. This is all possible because we are all working collaboratively toward a shared vision, as outlined in the Vision 2030 document our entire team had a hand in creating.

The Center, as with many ensemble practices, leverages the power of teams. We have team members who are specialists in such areas as insurance, divorce planning, tax planning, retirement planning, and many more. So if an advisor is met with a tough client case involving long-term care, for example, he or she can seek out help from a team member with expertise in this area instantly.

An often overlooked advantage for clients choosing to work with an ensemble practice such as The Center is the foundation for internal succession planning. It is often said that as an advisor ages, so do their clients. This begs the questions who will take care of me when my advisor retires? And from the advisors end, who will take care of my legacy once I’ve moved on? With a practice like ours, there is an internal succession plan in place for many years before a planner decides to retire. Often, clients are transitioned to an advisor who has been working under the tutelage of the retiring advisor.

As with anything, you must weigh the pros and cons of working with an advisor under their practice’s arrangement. In the end, it is all about finding the right person to help you reach your goals and feel comfortable along the way. At The Center, we have found that working in a team-based environment toward a shared vision helps us serve our clients the best way we can.

A Top Issue Financial Planning Clients Are Facing Due To The Pandemic

Contributed by: Sandra Adams, CFP®

We are approaching a year of living in what many are calling the “new normal”.  While the future remains unknown, last year provided us with the opportunity to reflect on what is most important in our lives.

When the health of ourselves and the ones we love is threatened, it sparks the reevaluation of our top priorities. During the Covid-19 pandemic, advisors at The Center found that clients are most concerned about the wellbeing of their families instead of short-term market volatility. Additionally, we have had more conversations about charitable giving and the causes clients want to support, especially now when so many people are in need.

I have had many conversations with clients in 2020 that reminded me of a book by Simon Sinek called “What is Your Why?” The book is about helping people find clarity, meaning, and fulfillment to find their purpose. Helping clients find their purpose is woven into the fabric of The Center. It has never been more evident and meaningful than in the last year. Even pre-Covid, after working together to learn what the client wants/needs, we can begin using their financial resources towards those goals – aka helping them LIVE THEIR PLAN.  While the past year may have shifted some of those goals (or delayed some of them – like travel, etc.), I believe that Covid-19 provided extra time, allowing many to focus on their most important goals – their WHY’s.

If you are interested in a financial planner and want to discover your “Why’s”, please reach out.  We would be happy to help you focus on narrowing those down and put those into action steps so that you can ultimately LIVE YOUR PLAN™.

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.