What Nate and Clint Learned in Orlando

What Nate and Clint Learned in Orlando

This past week, Nate and Clint went to the annual TD Ameritrade conference, called LINC 2020, held in Orlando, FL. The conference features a number of keynote speakers, breakout sessions, one-on-one training opportunities with TD Ameritrade staff, access to various vendors, and demonstrations of new technologies. Here are a few observations we came away with:


TD Ameritrade – Schwab Merger

Tom Nally, President of TD Ameritrade Institutional, indicated that the deal between TD Ameritrade and Schwab will close in the second half of 2020. It will operate under the Schwab name. Due to antitrust laws, TD and Schwab are very limited in the discussions they may have prior to the closing of the sale. As a result of this, as well as the sheer volume of data and systems the two companies possess, Tom estimated that it would take 2-3 years for the companies to integrate together. He was definitely hopeful that the new entity would be one of the best financial services companies around when it is finalized.


A Changing Geopolitical Landscape 

Ian Bremmer, president and founder of Eurasia Group, spoke at a keynote session regarding his thoughts on the worldwide economic and political environment. He sees an increasing departure from globalization and a significant technological divide between China and the United States. With China set to become the largest economic power, countries will have to decide what sort of technological backbone through 5G they will want to employ – do they prefer to go mostly through the United States or China? Bremmer sees more volatility in the markets and a general global slowdown, though not necessarily a recession imminent in the near horizon. He did not believe that there will ever be a version 2.0 of a trade deal signed with China. He was generally positive on the most recent update to NAFTA, which he pointed out was a good update to prior legislation due to technology improvements that have been made since the original version was signed. Bremmer kept the political prognostications to a minimum but placed President Trump’s chances are getting reelected at 60%. He was most concerned that we wouldn’t have a presidential choice immediately after the election due to the closeness of the race and the risks inherent in our electoral system if one of the parties refuses to accept the outcome. 

Human Connection

Marcus Lemonis is most famous for his CNBC show where he invests in struggling businesses and focuses on “people, product, and process”. He opened his keynote address by disclosing to us that he has social anxiety, an eating disorder, and was molested by a family member as an adopted child. Despite all of this, he persevered to become the CEO of Camping World and a TV star. He encouraged the people he called on to share something that no one knows about them, a deep and dark secret to just him – which of course was seen and heard by literally thousands of people in the room. It was remarkable what people would share after Marcus would gently nudge them into disclosing past trauma in order to show others that many people share the same obstacles in their journey through life. The overwhelming message was encouraging people to connect on a deeper level, and to address their past and learn from it.


Technology as a Tool

TD Ameritrade always features an Innovation Lab at their conference, showcasing what a financial advisory office of the future may look like. We viewed a more customized waiting room experience, offering an iPad with curated content for the meeting attendee (we prefer an old fashioned approach – actually speaking with the client and offering coffee!). We also experienced a more interactive financial planning experience, with various flash cards being strategically placed to trigger images on various screens behind the client (this was very cool). This visualization technique was designed to immerse clients more deeply in the financial planning process,  helping them to see their future value as more than merely a graph on the screen. Last, we viewed an advisor workstation desk that could automatically scan documents placed on the glass, highlighted by three large screens and stand-up capability. We also got to sit in an office chair designed by Ferrari. It was very nice, but at a price tag of $10,000, we’ll leave that purchase to the Marcus Lemonis’ of the world.


Clint Walkner and Nate Condon

Are You Ready to Lose $200k?

Are You Ready to Lose $200k?

With a tough end to 2018 after a poor December, the 2019 stock market looks to finish up significantly from a year ago. There were many prognostications of the end of the bull market and calls for a recession, but 2019 has brought us solid earnings and a more accommodative Federal Reserve from an interest rate policy perspective. Despite a lack of a solid trade deal with China and impeachment proceedings facing Donald Trump, the stock market has shaken it off and marches forward.

As we generally see market timing as futile, we have to spend some time looking at the reality of the stock market situation: this has been an expansion that has been long in duration in terms of years and also in the lack of meaningful volatility. However, we will, at some point, see the start of the next bear market. If you subscribe to mostly a “buy and hold” strategy in your investments, the cold truth is that the average bear market will take a significant bite out of your assets.

If you have $1 million in invested assets in retirement, a 20% portfolio downturn equals a loss of $200k! While the math here is rather rudimentary, we often notice in meetings that clients rarely consider the actual impact of a bear market on their personal net worth. Consider also that the average bear market is a decline of over 30% and a duration of 13 months (with subsequent recovery taking 22 months, on average). The next bear market will require us all to be patient. A loss, after all, is not actually a loss until you hit the sell button.

We don’t know whether the next bear will visit us in 2020, 2021, or even later…but what can we do about it now? We offer three suggestions:

  • Check the chance of your financial plan succeeding when you stress test it at certain levels.

  • Reassess your risk tolerance levels. If the last time you checked your perception of risk was a number of years ago, it’s a good time to look at it again. 

  • Rebalance your portfolio. If it has been over a year since you brought your portfolio back into balance, you might be taking more risk than you think (since equities now are likely a higher percentage of your overall allocation due to gains).

Note: If you are already a client, we are helping you with all three of the above items on a regular basis, though it is also a good idea to check into your risk perception periodically.

Are you prepared for a down market? If you are questioning whether you are, schedule an appointment and we can help you out (our initial consultation has no cost or obligation). It’s always better to prepare for the rain when it’s sunny outside.

Clint Walkner

The Dane County 2019/2020 Housing Market

The Dane County 2019/2020 Housing Market

While most of us have turned our attention to how is it possible that we had snow on Halloween and trying to determine if this is Wisconsin’s “new normal” for weather, the real estate market in Dane County is seeing few signs of cooling off. Some of the themes of 2018 repeated themselves in 2019 – low mortgage interest rates, tight market inventory, and rising purchase prices. While it is difficult to predict the future in any accurate way, 2020 by be deja vu all over again in the immortal words of the great Yankees catcher, Yogi Berra. 

Most 15 and 30 year fixed mortgages are ranging between 3% – 4%, with favorable terms on some ARM and Jumbo loans as well. The current rate environment is prompting some people to even consider a refinance of their existing home mortgage. The historic mortgage rate averages are significantly higher than what we have seen in the last ten years. As a matter of fact, from the early 1970’s until the mid 2000’s, the average mortgage rate was more than double what we are paying today. With the Fed signaling a more dovish stance on rates, we anticipate seeing below average mortgage rates for the majority of 2020 as well. It is worth your time to speak to multiple lenders, including mortgage brokers who may be able to provide a more tailored experience. 

In our opinion, the strong real estate market is more a product of low inventory than attractive mortgage rates. Both are charging up the market, however, the inventory challenges are creating more froth among buyers. The Dane County housing market, especially over the last 5-8 years, has required that buyers be ready to write an offer when the right house comes along. We strongly encourage potential buyers to meet with their mortgage lender prior to looking at homes and have settled on what is a want versus a need in a home. It is also our recommendation to work with a seasoned real estate agent. With a market that is routinely seeing multiple offers on a single property, you want an experienced agent who truly knows the market. The reality of the situation is that speed and efficiency is required. 

We are happy to provide our thoughts and additional resources should you want to discuss your specific situation further. Feel free to reach out via email to start the conversation. Even though this market is more challenging for buyers in some aspects, it doesn’t need to deter anyone from purchasing a home. 2020 will be a great environment to secure favorable financing and land you the home of your dreams!

Nate Condon

Did the “Market” Just Hit An All-Time High?

Did the “Market” Just Hit An All-Time High?

Yesterday (10/29/2019), we learned that the S&P 500 hit 3,047.87. In the game of telephone that is financial journalism, investors may hear this reported as “Markets Hit All-Time Highs.” And so, with “markets” hitting all-time highs, I think it is a good time to discuss one of my stylistic quirks– the fact that I like to put quotation marks around the term “markets.”  

It’s actually pretty simple: generally, when people talk about the “market” or “markets” they mean large-cap U.S. stocks as represented by the Dow Jones Industrial Average or the S&P 500. These indices track big companies– from Amazon to Zoetis– and while they do a good job reflecting the U.S. stock market broadly, they are still only about 80% of the U.S. market by market capitalization (market cap equals the value of outstanding shares of a company). Moreover, the U.S. stock market isn’t the only game in the world: U.S. stocks now represent only 40 (or so)% of the total market capitalization worldwide. Consequently, when the news says “Markets have hit all-time highs”– they are really only talking about less than half of the market. 

Case in point: here is a chart for the iShares MSCI EAFE ETF, which has exposure to a broad range of companies in Europe, Australia, Asia, and the Far East. The EAFE is a long way still from the highs set in 2007:

In many cases, investors will ask what should we be doing as “markets” hit all-time highs, it is a good reminder that “markets” haven’t– a segment of the U.S. market has. This may sound pedantic (Editor’s note: pedant = a person who is excessively concerned with minor details and rules or with displaying academic learning, or other words, the absolute definition of Keith Poniewaz), but investors should remember that their portfolio is diversified into many markets to protect them should the high in the “markets” be a bubble or should it continue forward.   

Keith Poniewaz and Clint Walkner

Commission-Free Trading: Is It a Free Lunch?

Commission-Free Trading: Is It a Free Lunch?

In breaking news, Charles Schwab roiled markets by announcing that they will be eliminating web and mobile trading charges. The announcement sent shares of Schwab down 7% as markets wondered how Schwab (and TD Ameritrade, who also cut commissions to zero as well on their response) might replace the approximately $90 million dollars of revenue generated by commissions.  

Some have suggested this is a “radical realignment” of the brokerage world (indeed, markets seemed to think so as several other online brokerages saw their share value drop in response to the news), but is in fact following a longer-term trend in the online brokerage world. For instance, many of our clients invest in commission-free ETFs with TD Ameritrade and many brokerages have started offering free trades (JP Morgan Chase offered 100 free trades to new clients and Schwab had previously offered free trades for a year) as an inducement for clients to sign on to their platform. Managed clients at many wirehouses already benefit from “free” trades in managed accounts (though the skeptic in us will mention that sometimes the investor may have been better off paying trading costs rather than a higher “wrap” fee). Ultimately, from lowering fees on ETFs to trading costs on both equities and ETFs, the cost of being an investor has been in gradual decline over the last several decades.  

However, as they say in economics: TINSTAFL (“There is no such thing as a free lunch”), and so the question for many is how does Schwab plan to make up this loss in revenue? (Editors note: This is a stupid acronym.) The first is to realize that Schwab is basically functioning already as a bank: in its recent quarterly earnings report it noted that it had earned nearly $1.4 billion on deposits alone in the quarter: essentially Schwab brokerage accounts pay out very little in interest and they earn money on the difference (their net interest rate is roughly 2.4%). Additionally, Schwab also offers loan products through pledged asset loans and other lending products, and we expect an increase in focus on these products as they (and other custodians) compete for wallet share.

Consequently, simply by bringing more money through the door they will currently earn 2.4% on cash sitting in clients’ accounts. The other way that some have suggested Schwab will earn money is by handling the spread. Every trade has two prices: the price the buyer wants to pay and the price the seller wants to get (the bid and the ask). A brokerage can make a few pennies per share by selling at the buyer’s price and buying at the seller’s price (this is called market-making). By encouraging more trading (by eliminating commissions), Schwab and other custodians may make some of that back by increased revenue from market-making. (As a note, Walkner Condon frequently works with TD Ameritrade’s block trading desk to help manage the bid-ask spread for larger trades and thinly traded ETFs. For questions about how that works, speak with your advisor). 

For more on this market-making, the Wall Street Journal has an article discussing this focusing on Robinhood, another fintech startup that has built its business on “free” trading. Interactive Brokers also is rolling out a free trading platform and it appears that they are being more transparent on the market-maker markups versus their SmartRouting system.

Ultimately, while it is likely that other online brokerages will follow Schwab’s lead, but this elimination of trading costs is not a revolution, but more an evolution. Fortunately for investors, costs relating to trading and holding investment products continue to trend downwards. While it is not a free lunch, we are getting more value for our meal.

Keith Poniewaz & Clint Walkner