The last year has been full of challenges that negatively affected our lives. As individuals and families, we’ve had to adjust and be resilient—qualities that will not only help us be successful in life, but in investing as well. The positive throughout this is that it has forced us to minimize the noise in our lives and be less distracted by social obligations and more focused on self-reflection and the people, ideas, and activities that are simple, yet most important to us. Let’s frame this experience as a unique opportunity we had to revisit our purpose and values. 

In my conversations of late, I’ve found as a result of recent experiences, many folks have become more aware of the precious and precarious nature of life and the importance of their legacy. This has prompted them to finally take action on planning for their futures and those of their families. 

In planning your life and executing a life plan, you’ll no doubt find a myriad of obstacles and friction in the process, as it is a daunting task. Like most people, you are probably just too busy and don’t have the time and immediate knowledge and expertise to accomplish all the things you want to do expediently. Ultimately, I think recent events have solidified the idea that we will be more successful in life planning and attaining our vision when we have an advocate working with us on our behalf. 

An advocate is someone who works in support of another’s cause. It’s almost essential to have an advocate to be successful in any aspect of life, much less your financial life. Contemplating this concept has further solidified my belief that the most important service a great holistic financial advisor can provide is being an advocate for your cause and values. Yes, investment, legal, and tax structures are important in implementing your life plan, but how to execute and manage those dynamics in a world where much is out of our control is difficult to accomplish on our own. Having a financial advocate is essential. As such, here is a simple yet effective framework to live a fulfilling life: 

1. Clarify your values
2. Set your financial life in motion based on those values
   • Partner with an impartial fiduciary financial partner, your advocate
   • Plan financial goals in observance of your values
   • Empower the advocate to execute and manage the plan and report to you
3. Spend your time with the people and activities most important to you

This framework is an effective way to simplify your initial thoughts when the prospect of actually accomplishing your goals seem complicated or daunting.  As we have found recently, there are often just too many opposing forces in life to keep moving forward without an advocate helping you—because the best way to deal with uncertainty is to plan for it. Finally, take the long view, remember who you are, and acknowledge that sooner or later you’ll need help.

And finally a reminder regarding extension deadlines for taxes and IRA contributions.

The nationwide deadline for filing an individual federal income tax return for tax year 2020, or requesting an extension has been extended from April 15, 2021 to May 17, 2021*. It’s also the deadline to make certain contributions to their Individual Retirement Accounts (IRAs), Roth IRAs, and Coverdell Education Savings Accounts.

The IRS contribution limit to an IRA for tax year 2020 is $6,000. However, anyone over age 50 who has a traditional IRA or Roth IRA and is eligible to make a contribution (see IRS Publication 590-A for more information) is entitled to make an additional “catch-up” contribution of up to $1,000, for a total of $7000.

*Certain taxpayers impacted by winter storms in 2021 have received an extension to contribute to their IRA or ROTH IRA for tax year 2020 by no later than June 15, 2021. Please visit the IRS site for more information.

WorthPointe does not give tax advice. Please speak with a tax-planning professional about your particular situation. 

2021 Q1 Index Review Through March 31

Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. “BB=Bloomberg Barclays”. Market segment (index representation) as follows: US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net div.]), Emerging Markets (MSCI Emerging Markets Index [net div.]), Global Real Estate (S&P Global REIT Index [net div.]), US Bond Market (Bloomberg Barclays US Aggregate Bond Index), and Global Bond Market ex US (Bloomberg Barclays Global Aggregate ex-USD Bond Index [hedged to USD]). S&P data © 2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data © MSCI 2020, all rights reserved. Bloomberg Barclays data provided by Bloomberg. 

Just. Wow. The return for the Russell 2000 index (U.S. small company index) for the last year was 94.85%? Am I reading that right? It seems not too long ago, I found myself, more than usual, having to communicate with investors the potential benefits of having small cap stocks well-represented in a diversified global allocation based on the long-term academic research and data at hand. And it was, quite frankly, not the easiest conversation, when many folks were convinced recent returns on their large cap and growth-oriented positions “proved” otherwise. The moral of the story is that long-term data is more robust than short-term data, and you have to have patience to reap the rewards of risk. For sure, in the last year, investors have lived both sides of that risk/reward equation. 

Taking a deep breath and settling down a bit, let’s look at the 2021 Q2 index numbers listed in the table above. All equity indexes were positive. The Russell 2000 Index, at 12.7%, was the best performing asset class, about doubling what the S&P 500 returned. The international (EAFE) and emerging market indexes seemed to settle down from a bit, returning 3.5% and 2.34%, respectively.

In addition to the small cap premium boosting returns year-to-date through March 31, 2021, value stocks have performed better than growth stocks year-to-date as well, as can be seen in the table below. Those investors who have exposure to both small and value stocks should have seen the combined benefits of these factors in their portfolio returns.

Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: Large Cap Value (Russell 1000 Value Index), Large Cap Growth (Russell 1000 Growth Index), Small Cap Value (Russell 2000 Value Index), and Small Cap Growth (Russell 2000 Growth Index). Frank Russell Company is source and owner of trademarks, service marks, and copyrights related to Russell Indexes. MSCI data © MSCI 2021, all rights reserved.

Let’s not forget REITs, as the U.S. and international REIT indexes performed admirably well for Q2, returning 8.72% and 6.45%, respectively.

Generally, bonds did not fare as well as stocks in Q1, with the aggregate U.S. bond index declining by 3.37%—much of this due to increased interest rates. Interest rates generally increased in the US Treasury fixed income market during the first quarter. The yield on the 5-Year US Treasury note rose 56 basis points (bps), ending at 0.95%. The yield on the 10-Year T-note increased 81 bps to 1.74%. The 30-Year Treasury bond yield increased 75 bps to 2.39%. On the short end of the curve, the 1-Month US Treasury bill yield decreased 3 bps to 0.05%, and the 1-Year T-bill yield fell 5 bps to 0.08%. The yield on the 2-Year US Treasury note climbed 6 bps to end at 0.15%. 

Longer-term bonds generally underperformed shorter-term bonds in developed markets, which supports a bond investment philosophy of relative safety by maintaining shorter duration bonds as part of a globally diversified high-credit quality fixed income approach. 

Morgan is an investment advisor in San Diego, Calif. He is registered with the Securities and Exchange Commission (SEC). Registration of an investment advisor does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the commission.  Morgan only transacts business in states in which he is properly registered or is excluded or exempted from registration. A copy of Morgan’s current written disclosure brochure filed with the SEC, which discusses among other things, Morgan’s business practices, services, and fees, is available through the SEC’s website at www.adviserinfo.sec.gov.

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