Another Quarter, Another All Time High
In June, both the Dow and S&P 500 reached new highs and marked the strongest June since 1938 and 1955, respectively. The Dow ended the quarter up 4.2% and the S&P 500 was up 4.3%. The international markets were optimistic for a resolution with the ongoing trade talks; international equities fared better than the US for the quarter, finishing up 5.9% as measured by the MSCI EAFE Index.
The latest economic data such as durable goods orders, bond yield, and interest rates seems to suggest that the US economy is slowing. Yet the market is reaching new highs. We are at the phase of the market where worsening economic news is better for the market due to the anticipation of rate cuts. The Federal Reserve will be holding its Federal Open Market Committee at the end of July and traders are anticipating a rate cut if signs point to further softening of the US economy. In the longer run, stock prices are driven by fundamentals or corporate earnings. However, in the shorter run, the geopolitical issues will drive the market vs. fundamentals. We are taking the data as it comes and are in the process of reevaluating the allocations in light of a softening economy. We will find out soon enough if the Fed decides to bring out the punch bowl yet again in efforts to be more accommodative for the economy. Most importantly, we will be listening carefully to the comments post the rate announcement to gauge the Fed’s next action.
Flourish Cash Online Savings
To get ahead of the Fed decision, most banks have lowered rates on their savings accounts by .10 to .15%. If you’re holding cash reserves at a traditional bank, you’re probably earning less than .5%. Online savings accounts, without the traditional bank’s overhead costs like physical branches, are able to offer significantly higher rates. One of the best online bank savings programs that we have come across is Flourish Cash.
As we’ve met with clients, we’ve made a point to discuss the best place for your emergency cash reserves via online bank savings programs. Our favorite is Flourish, which offers one of the most competitive rates. Flourish splits the deposits between eight different banks, so the FDIC insurance limits are higher, $2M for individual accounts and $4M for a joint account. Additionally, there are no fees, no minimum balance, and the interest rate is higher at 2.3% as of July, 2019. If we have not had the chance to talk with you about this, please schedule a call with us and we can help you determine which online banking solution is the best for you. Or if you are interested in using Flourish, please let us know and we will send you an invitation.
Tax Projections and Withholding
As we mark the end of June, it is a good time to review your withholding and make sure you’re on track to cover your tax liability for 2019. With the tax law changes in 2018, the IRS adjusted the withholding tables. Many high-income clients under withheld and thus owed at filing time. The IRS provided a limited waiver of penalties for people who under withheld in 2018 but probably will not do so for 2019.
As we meet with you throughout the remainder of the year, it would be good to reaffirm your tax withholding, so you aren’t surprised in April. For those already retired, this is less of an issue as we’ve adjusted your IRA distribution withholding as necessary. However, if you have a pension that makes up the bulk of your income, we will still want to run a tax projection to double check. If you have not heard from us, please touch base and send us your most recent pay stub or pension statement so we can complete your tax projection.
Best Interest Versus Fiduciary
The SEC recently passed new regulation for the financial services industry called Reg BI or Regulation Best Interest. The details are coming out now, but in essence Reg BI was the SEC’s effort to try and standardize the advice given by both Broker-Dealer (e.g. Merrill Lynch, Charles Schwab & Co.) and Investment Advisors (e.g. Archvest Wealth Advisors). While we stand behind the essence of the SEC’s intent, we are discouraged by the final rulings. In the 771-page regulation, the SEC was unable to define “best interest” and needed to issue a 41-page document that provides further interpretation of the regulation. Furthermore, SEC issued a 524-page document to Broker-Dealers on how to provide “proper disclosure” of conflicts of interest. It should not take 1,336 pages to explain how to act in the best interest of the client. We are disappointed by the final ruling as we do not think it goes far enough to protect investors.
One of the reasons we started Archvest was to place your interest first by holding ourselves to a fiduciary standard, a higher standard than the recently passed Reg BI.
The National Association of Personal Financial Advisors has a Fiduciary Oath, which really states what we do best. In light of the regulations, we felt it was important to share this oath with you. It reads:
The advisor shall exercise his/her best efforts to act in good faith and in the best interests of the client. The advisor shall provide written disclosure to the client prior to the engagement of the advisor, and thereafter throughout the term of the engagement, of any conflicts of interest, which will or reasonably may compromise the impartiality or independence of the advisor. The advisor, or any party in which the advisor has a financial interest, does not receive any compensation or other remuneration that is contingent on any client's purchase or sale of a financial product. The advisor does not receive a fee or other compensation from another party based on the referral of a client or the client's business.
Following the NAPFA Fiduciary Oath means I shall:
- Always act in good faith and with candor.
- Be proactive in disclosing any conflicts of interest that may impact a client.
- Not accept any referral fees or compensation contingent upon the purchase or sale of a financial product.
We are proud to uphold this oath in working with you and we hope over time the industry will make the appropriate changes. Reg BI was a start, but there is still a long road to raising the standards in the financial services industry.
5 Year Birthday
The end of August marks another year for Archvest. However, this year is a big one for us, this is our five-year anniversary. We want to express our sincere gratitude for your support over the years. We started this firm with the vision of helping individuals and families build a secure financial future and achieve their goals. We are happy to say these simple principles have guided our path to helping over 180 families thus far. With joyous heart, we celebrate 5 years of serving you. We couldn’t have done it without your support.
As always, we appreciate the confidence you have placed in us to work alongside you regarding your planning needs. Be sure to follow us on Facebook, LinkedIn and Twitter as well as our RSS feed to stay up to date on what we’re reading and thinking.
Eric Lai, John Wenzel, & Jill Shibuya
Eric Lai, John Wenzel, & Jill Shibuya | Archvest Wealth Advisors