ACTION REQUIRED! Sustainable Accountability

"ACTION REQUIRED!" read the email caption. "Protesters targeting several US Investor Centers", the heading continued. As a branch manager at Fidelity Investments, I received dozens of these emails over the years. The actions being required typically consisted of notifying corporate security if the protesters actually showed up (which was rare), and reviewing the company's policies for speaking to the press in case a reporter were to arrive at the scene (which was more or less forbidden).

The protesters' causes ran the gamut. There were calls to divest from countries with objectionable government policies, like Sudan. Then there were the demands to eliminate support for businesses that received ill-gotten gains (in the protesters' opinion). Tobacco, oil companies, and utilities were frequent targets. More recently, it was about sharing with "the 99%" that apparently had the time to camp out for weeks on end while "the 1%" worked for a living. 

While activists will continue to use tactics such as protests to bring attention to their cause, other forms of activism have gone more mainstream. Last year, California’s Public Employees' Retirement System and California State Teachers' Retirement System, two of the world's largest pensions, were ordered to divest from coal companies by mid-2017 through a law (SB 185) passed by the California legislature. While similar laws are unlikely to be passed any time soon in Texas, individual investors increasingly are investing with their conscious as much as they are with their wallets.

In my own experience, individual investors have historically been agnostic about how their investments went about generating profits. Over time, however, the requests for investments that fit into the customer's world view have became more and more frequent. According to a 2014 report from The Forum for Sustainable and Responsible Investment, from 1995 to 2014, the amount of assets invested in the US sustainable and responsible investing market universe increased 929%.

Nowhere is this more evident than concerns about climate change and our contributions to it. The unscientific view from my Austin Westlake window as I write this week's Accountable Update suggests that consumers are putting their money where their mouth is when it comes to sustainability. From my perch, I can count over a half dozen neighborhood homes with rooftop solar installations. On a recent drive to my office downtown, Tesla Model S drivers outnumbered Hummers 7-0.

I know that some of you readers are thinking, "Yeah, yeah, yeah, but you live in the Peoples' Republik of Austin with all the other salamander-huggers." It is true that the central core of ATX is one of the few reliably "Blue", or liberal, parts of the Lone Star State. But the west side of Travis County where I reside quickly turns "Purple" as you move towards the more conservative "Red" suburbs. If my neighborhood and commute are any indication of how the moderate middle feels about sustainability, then it suggests that the trend is, well, sustainable and likely not a passing fad.

At ATX Portfolio Advisors, Accountable Wealth Management is our practice of not charging advisory fees when our clients' accounts lose value. What may not be as well known is that we also offer Accountable Portfolios that incorporate sustainability and/or socially conscious practices. You could call it Sustainable Accountability!

When a client requests it, we will build them a portfolio with mutual funds from Dimensional Fund Advisors that emphasize those practices to address issues important to them, like sustainability. The best part is that we can do this while continuing to offer broad diversification and focusing on capturing the higher expected returns of small, value, and profitable stocks. 

If you have concerns about the sustainability or accountability of your investments, the only "ACTION REQUIRED!" is to get in touch for a free portfolio review.

Play Ball! Ace the Tax Test (and others too)

Photo by Edwin Martinez

Ever heard of Vern Law? No, it’s not a facet of some state or federal legal code, financial rule of thumb, nor some scientific observation of the way the universe works. In fact, it’s not a law at all. Vernon Sanders Law, was a pitcher for the Pittsburgh Pirates from 1950-1967. He is probably most noted for winning the Cy Young Award in 1960, which also happened to be a year the Pirates won the World Series.

If you know me, you probably also know that just about anything to do with baseball interests me. When I can find an excuse to include America’s pastime in my daily routine, or the Accountable Update, I will do so. Case in point, for many years I have coached youth baseball and softball. People often thank me for volunteering or sacrificing my time for the sake of their kids. What they may not realize is that this activity has offered a welcome respite during what is frequently one of the most hectic times of the year in financial services, also known as tax season. I often feel like it is me that should be thanking them for having kids that play the game!

So, what does this have to do with Vern Law? It’s something he is credited with saying, “Experience is a hard teacher because she gives the test first, the lesson afterwards.”

About a year ago, ATX Portfolio Advisors opened for business. As a first time business owner, I have learned several lessons during the latest lap around the sun. The ones that were tested most often weren’t what I knew or didn’t know. The most frequent were those that exposed what I didn’t know that I didn’t know!

With tax (and baseball) season in full swing, I recently had the opportunity to chat with Chris Thomas, an Austin partner and CPA at the accounting firm, Tidwell Group.  We discussed what lessons that he most frequently found himself teaching, after the test, to their clients. Chris and his colleague, Ryan Nevill, shared the following wisdom.

What is the most common mistake you see business owners make when it comes to minimizing taxes?

“The most common mistake business owners make when it comes to minimizing taxes is not planning ahead. The business owner's tax preparer should be consulted throughout the year in order to prepare for tax filing. A tax professional can often find ways to minimize taxes, including taking advantage of credits the owner may have not been aware of.” 

What other mistakes do you commonly see?

“Other common mistakes include not being aware of new tax laws, not communicating transactions accurately and timely, and not being flexible with structuring or seeking out tax professionals that are experts in specific areas.”

What are a small business owners best practices for keeping their taxes down?

“The best way for a business owner to keep their taxes down is to be proactive. Take the time to learn the general tax laws relevant to your industry, and become familiar with the guidelines presented in your organizational documents. Identify extraordinary business events before they happen and know when to consult your tax preparer. Being proactive instead of reactive is the best way to keep taxes down.” 

Maybe not surprisingly, all of these responses have very direct applications to overall financial planning as well. Lacking a plan, not seeking expert guidance, and not staying current with ever changing rules and laws are probably the most common mistakes I encounter.

The main reasons for these mistakes, in my opinion, are lack of time and interest in dealing with what can sometimes be detailed and mundane topics. As another baseball great famous for quotes, Yogi Berra, once said, “In baseball, you don’t know nothing.” If you start with that realization about everything else, you will be well on your way to passing the next test.

If your financial plan isn’t making a passing grade, let’s play ball.

"Issue Briefs" on Diversification and Yields

"Is diversification still worthwhile?"

"Why buy bonds when rates are going up?"

These are two of the most common questions that I'm asked by investors. The latter one for over 20 years!

After several years of the largest domestic stocks outperforming, well, just about everything, it can be easy to forget why investing in small/mid sized companies and internationally in both developed and emerging markets makes sense.

It is also understandable to be concerned about the impact of rising rates, especially since the Federal Reserve increased them in December. However, it may be surprising to many that market driven rates have actually fallen since the hike. In this week's Accountable Update, I share perspective on both of these questions with "Issue Briefs" from my friends at Dimensional Fund Advisors.

The first, titled Why Should You Diversify?, reviews why spreading your eggs to more than one basket still matters. If you read this blog often, much of this piece will be information that is probably already familiar, but an occasional refresher never hurts.

In the second, Revisiting Yields, DFA discusses their strategy of designing bond portfolios that may increase expected returns by using information in the yield curve and applying it globally and with varying maturities. 

If you would like to review your diversification, yields, or overall portfolio and goals, get in touch.