Friday Reflection | September 18, 2020
A Blue Sky
“It is not your responsibility to finish the work of perfecting the world, but you are not free to desist from it either.”
– quoted from the rabbinic teachings of Pirkei Avot
Alarm bells have been sounding about climate change for years, and in California it feels like risks formerly seen as sporadic or distant have officially become imminent and recurring. Large wildfires have burned more than 3.2 million acres of our golden landscape, and the smoke cloud now extends over most of the continental United States and out into the Atlantic Ocean. The memory of last week’s dark orange sky is not far from our collective minds, and the risk of our changing climate melds with pandemic fears and election concerns.
In financial markets, the trend of elevated volatility persisted this week and stock prices saw small losses. The Fed affirmed their commitment to low interest rates, keeping short-term rates unchanged and stating that near-zero rates will remain steady through 2023.1 As we have written many times, historically low interest rates encourage additional risk-taking. Low rates mean less return on savings, leading many would-be savers to turn instead to dividend stocks and other investments, pushing prices higher. Investors are weighing this lower return against the personal and financial benefits that stable savings bring in a period of elevated concern.
In his address to Congress a day earlier, Fed Chairman Jerome Powell noted that even with historically low rates, the need for additional stimulus remains. After weeks of continued stalemate, President Trump announced this week that he supports a larger stimulus package than the GOP-led Senate is currently considering.2 His motivations are undoubtedly rooted in the impending election, but nonetheless it may help ease the path to a compromise that extends critical financial support to the millions of unemployed Americans, small businesses, and to state and local governments. The stock market has been expecting a stimulus package for months, and some of the recent price weakness can be linked to concerns that stimulus may not materialize.
History Offers Context, Not Certainty
Lawmakers’ ability to reach a compromise on prior stimulus packages does not necessarily mean more stimulus. Despite agreement on the need for some level of additional support, a chasm of disagreement remains about the measurable impact of past stimulus, and what type of stimulus would be most advantageous at this stage of the recovery. The market has stalled somewhat, and is digesting this decreasing level of certainty that support will materialize. The well-worn phrase, “past performance is no guarantee of future results,” is a reminder that recent levels of growth and return are not certain, any more than the next stimulus package is a certainty.
Just as we can’t predict the outcome of stimulus conversations, we can’t predict what will happen next in investment returns. High returns may give way to lower returns, growth dependent tech stocks may yield leadership to value oriented investments with more predictable cash flows, or international stocks may begin to outpace US companies. The key point is that we cannot know exactly where the market will cast favor based on the rearview mirror. For our clients, the resiliency of a globally diversified portfolio, with attention to tax planning and regular rebalancing, offers a foundation for life decision making when facing a future that is in flux.
Innovation and the Unexpected
Disruptive change impacts decision making, sometimes provoking action and other times leading to paralysis. Right now our clients and their communities are grappling with the magnitude of climate change, while simultaneously attempting to envision a future that includes remote work, face masks, and changing social norms that support public health. National conversation across lines of race and class is tense and confusing.
The instinct of many is to hunker down, postponing large decisions or life events until the dust settles. This provides more time to understand the ‘new normal’ or next evolution of daily life. Recently, a client who had been considering retirement decided that one additional year of work, with good benefits and stable income, held more psychological value than navigating the transition to an unstructured life post-work. The decision was personal, and they understood their ‘why’. They wanted to preserve a sense of security and routine, even though they have built a strong financial foundation.
For others, the broad destabilization has created opportunity to embrace further change. We have had multiple clients move during this pandemic, seeking to re-script their life or take advantage of newfound remote work capability. Other clients have explored the purchase of real estate in other states or countries, to escape smoky skies or the current political climate. In both cases, they are electing to take action, creating an element of control in their lives and their future, amidst a shifting world that is outside of our control.
Whether you fall into the ‘hold tight’ camp or the ‘embrace the change’ camp or somewhere in between, it is key that your financial resources can support your particular life needs. Our tagline, Invest in Living, intends to create this alignment – that investments should be tailored to your life and well-being, not to broad rules of thumb or generic advice about ‘what you should be doing’. For most of our clients, the best path in this year of disruption has been to stick with their long-term plans, while adjusting for necessary changes based on public health rules.
Clear Air and Blue Skies
Thankfully, air quality in the Bay Area has improved, providing a chance to open windows and breathe deeply. Coinciding with the start of Rosh Hashanah, this temporary moment of fresh air provides an opportunity to reflect on our personal and communal decisions over the past year, and prepare ourselves for the year ahead.
Many clients have engaged us as a thought partner as they consider short-to-intermediate term decisions, both to understand the financial impacts of a particular change as well as mentally explore their own ideas about what changes would be most supportive and energizing. For some, these conversations bring clarity about the future that warrants a shift in investment strategy, or other elements of ongoing spending, saving, giving, and tax strategies.
Refining your sense of purpose, and finding practical ways to begin to act on it, can also help lift the physical and psychological stress that increased isolation has forced on us. Getting on with a long-imagined project home project,3 evaluating the possibility of moving closer to family, committing to learn a language or an instrument, developing a more deliberate approach to your charitable giving or volunteer time. These “big” tasks may in fact energize you, and bring a stronger sense of possibility to your daily life, while your financial reserves create a sense of security.
1 Fed Sees Rates Near Zero Through 2023 to Boost Jobs, Prices. By Catarina Saraiva and Christopher Condon. September 16, 2020 Bloomberg
2 Trump’s Shift on Stimulus Leaves Republicans Skeptical, Divided. By Erik Wasson and Laura Litvan. September 17, 2020. Bloomberg
3 Marie’s Kondo’s best-selling book, The Life-Changing Magic of Tidying Up: The Japanese Art of Decluttering and Organizing, is one reference on focusing your life and lifting up items or tasks that spark joy.
About Brian Kozel, CFP®
Brian Kozel is a partner and lead advisor at North Berkeley Wealth Management.
This commentary on this website reflects the personal opinions, viewpoints, and analyses of the North Berkeley Wealth Management (“North Berkeley”) employees providing such comments, and should not be regarded as a description of advisory services provided by North Berkeley or performance returns of any North Berkeley client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. North Berkeley manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.