Dear Friends,

Recently I was at an event and the topic of Meme Stocks (like AMC, Gamestop) came up. These are unique and volatile (social media-driven) stocks, changing value as much as 100% + in a day. One attendee also commented to me “I have been in an index fund but it goes up and down so much it is hard to stay in – they say the key is to be diversified – right?”. Given the current run certain stocks have enjoyed post–Covid, the siren song of chasing the best performers (and abandoning diversification) is always tempting. Although every time period has different characteristics, in many ways this feels similar to the late 90s when the web boom led to the dot.com bust. We continue to believe in the benefits of diversification. Many historical bellwether names (such as Sears, Wal–Mart, GE, Cisco, to name a few) which seemed almost invincible and very safe bets in their prime, have ultimately fallen from grace. If you are tempted to think Sears is an extreme example, remember that in the 1970s and 80s virtually everyone shopped at Sears until Walmart knocked them out much like Amazon today. Similarly, you could point to GE in the 80s and 90s or Cisco in the early 2000s as stocks which looked like they could go up forever, but have been flat or down for 20 years. So what does diversification mean? What about if someone just owns the S&P 500 index – is that diversified enough? Consider the following portfolio scenarios from 2000 to 2010: 

As you can see adding other proven asset classes to portfolios can substantially lower volatility while maintaining healthy returns. Rebalancing as assets fall out of favor help drive outsized returns by enabling a systematic way to buy low/sell high. 

Finding Joy In The Investing Process Is Possible and Recommended What good is having money if you have no peace? A recent study by Investment News indicated that 53% of adults say thinking about their financial situation makes them anxious, and 44% say discussing their finances is stressful. We‘ve all battled these anxieties, so what can we do to have a more peaceful and joyful view about our finances? Many anxieties come from worrying about things we can‘t control. Chief among these are market fluctuations. Popular writer Mitch Anthony says “99% of what we worry about never comes true, and 100% of past market sell–offs come back eventually“. To provide peace of mind, we can take prudent planning steps such as having an emergency fund (this often overlooked) and making sure we have good insurance in place among others. It is helpful to stay focused long-term on what we control (our behavior) and try to find joy in the process! 

Higher Taxes on the Horizon? Recent proposals call for an 84% increase in capital gains rates for top brackets and a wealth tax starting at 2% of net worth for High Net Worth Filers. Some of this may come to pass and uses of strategies like after–tax and Roth 401ks are now available, Solo 401Ks, Backdoor Roth conversions, and Donor Advised Funds will all become more mainstream to protect assets from unnecessary taxation. We are actively updating financial plans accordingly with more to come on this. 

Regards,
Mitch and Destin