Doug Fabian: Welcome to this exclusive webinar for clients of Mercer Advisors. This special report, a conversation about today’s markets, was recorded Friday, March 20th, 2020. This is Doug Fabian and I’ll be your host for today’s webinar. Our objective it to keep you informed as to what’s happening in the capital markets and to explain how we are continuing to work with you to achieve and maintain your economic freedom. Joining me is Don Calcagni, our Chief Investment Officer and Kara Duckworth, Managing Director of Client Experience. Kara and myself also serve on the Mercer Advisors Investment Committee that is chaired by Don Calcagni. Our agenda today is to discuss what’s happening now in the investment markets and how we should think about this in the context of the health crisis. Also, we want to discuss why and how our personal financial plans act as a guide in times of uncertainty. Don and Kara, welcome, and thank you for preparing this presentation for our clients.
Don Calcagni: Thank you, Doug. It’s great to be here.
Kara Duckworth: Thank you, Doug. I’m happy to be here with you both.
Doug Fabian: So Don, let’s talk about what you want clients to take away from today’s broadcast.
Don Calcagni: I think very simply, Doug. Number one, bear markets are not new. Number two, all bear markets ultimately end. And number three, bear markets provide some great planning opportunities that the clients and their advisors should look to capitalize on.
Doug Fabian: Kara, how about you? What do you want clients to take away from after watching today’s program?
Kara Duckworth: I’m going to echo a bit of what Don was saying. Financial planning is incredibly powerful and to recognize that even in the midst of bear markets, we have actionable items that clients can use in order to influence positively their long-term financial goals.
Doug Fabian: Let’s jump right into it. Let’s talk, Don, exactly about what’s happening in the markets right now. I believe that this next slide, this long-term 10-year chart of the S&P 500 paints the picture of how severe this decline has been short-term.
Don Calcagni: Yeah, absolutely Doug. It’s important for our audience to know that we are now technically…officially, I should say, in a bear market. A bear market is defined as a 20 percent or greater decline from the recent market. The S&P 500 hit an high on February 19th. The market, the S&P is now down about 32 percent from that particular high, although it is negative only…I should say only in parenthesis and quotes, negative 28.7 percent for the year. Now, when we look at Roy [Phonetic 00:02:53] market returns over a longer period of time, you’ll see here that we’re showing our audiences the 10-year return on the S&P 500 Index. Even with this recent decline, the S&P has averaged about 9.8 percent annually since about early 2010. So Doug, I do think it’s important that we acknowledge the historic nature of this sell off, in terms of how quickly the market had sold off. So, while this has been the most rapid bear market in market history, it is not the steepest sell off in market history. Most bear markets, the average bear market is negative about 35 percent from top to bottom. We’re currently negative about 32 percent. If we just rewind the tape a little bit and we go back to 2008, 2009, the market was actually up about 55 percent back during 2008, 2009. So, while the last week or so has been very historic in terms of how quickly the market had sold off, it’s not historic in terms of the depth of the bear market.
Doug Fabian: Kara, let’s talk about where we stand in terms of all of us being in this together. Just to mention the health crisis, certainly we all understand that not only is the United States involved in this health crisis, but virtually every country in the world. We’re certainly all in this together.
Kara Duckworth: Absolutely Doug, and I’m very confident that I can speak for all of us here at Mercer Advisors that we are certainly not trying to minimize the stressfulness of the current market conditions. We are all in this together. This is not a theoretical construct to us. We are invested exactly as you are. We are not telling you to do something that we are not experiencing ourselves. We’re feeling the same volatility that you are and we don’t like it either. But, we have to deploy our discipline and our expertise in order to get to our own personal financial goals, just like we advise our clients. In total honesty, I haven’t logged in to see my own current account balances. I certainly have a general idea based on market conditions, of course. But, I know that what’s going on short-term here in the market doesn’t change my long-term financial plan when I check it from day to day. I’m certain that I’m not the only one in that circumstance in this group.
Don Calcagni: You know Doug, I want to add to that. When I think about investing, I remember growing up my grandfather would buy bonds. In the old days, as you probably remember, when you bought a bond, there were coupons on it. In the old days, you had to cut those off, clip them off and you would mail them in. Then, you would receive a check from Ford Motor Company. I can distinctly remember some Ford Motor Company bonds. The reason why the greatest generation and many others have done so well building wealth throughout their lifetimes. When they would buy investments, Doug, they would take them and they would do that. They’d put it in a drawer and they’d put it away. They would basically forget about it for very, very long periods of time. My grandfather also owned stock in Disney. He did the same thing. He bought it, took those certificates. I think we found them after he passed away many years later. So, when I think of investing, when I think of our portfolios, I would encourage our clients…and they might benefit from one of those lessons from yesteryear, from our parents and our grandparents with respect to how we think about investment. I know that’s hard in a world with lots of information at your fingertips, but I do think it’s a lesson from yesteryear that would really serve us well today.
Doug Fabian: Well, Kara, let’s talk about this slide you put together. Certainly, we are in a time of uncertainty. But, what should we be focused on right now?
Kara Duckworth: I think in times of uncertainty and similar, I think, from Don talking about lessons from generations that we’ve had in the past, where we put our focus matters for our long-term goals. I think that is a good lesson from our parents and our grandparents, that they had this idea of focusing on the things that really matter. The financial planning process helps us prioritize what truly matters to you, your goals, your family, your business, protecting your assets, your legacy, your charitable intentions, minimizing taxes. There are things in the world that we cannot control, and market conditions are certainly one of them. We can understand the market environment and we can analyze the data, of course, but we don’t have a crystal ball to know when the markets may hit the bottom or even when they may be at the top, either. The magic really happens when we focus on the intersection of what matters and what we can control. So, using the capital market conditions to optimize what you set out as priorities in your financial plan, and then making good decisions on actions that we can do to help achieve your long-term goal.
Doug Fabian: Don, anything you want to add to that?
Don Calcagni: Yeah, I love this particular slide and I love Kara’s message. When you think of the financial markets, I’m always amazed when I see these commercials on television that are, I think, frankly, manipulating people thinking that they can somehow take control of the market. The reality is nobody can individually control the market. I’m also reminded of a story. I remember distinctly the market crash in 1987. I remember being with my grandfather at the time, and he was really my inspiration for getting into finance. I asked him, I said, “Grandpa, what are you going to do? Aren’t you worried about this market crash?” I remember him literally shrugging his shoulders and saying, “Hey, are you hungry?” I said, “No.” He said, “You got a bed to sleep in tonight?” I said, “Yeah.” He said, “Well then, you’re fine.” Literally, the conversation just moved on. I love that message, focus on what we can control. Don’t lose sleep over the things we can’t control. Again, I do want to echo what Kara said. I’m not trying to minimize the pain or the suffering around the current crisis. I’m just trying to help put it in a little bit of longer-term context and maybe looking to some of our previous generations for some guidance on how to deal with these bear markets.
Doug Fabian: Well, one of the unusual things that we have right now is all of us, certainly when schools have closed, we are all now…businesses have closed. We have a lot of extra time on our hands and to be sitting in front of the television and watching the news cycle for 24/7 and getting yourself worried about what’s going on is not going to help your personal situation. We want to encourage all clients to think about those things that matter, certainly things like family and faith and things that you really care about, and the things that you can control which we’ll talk more about during the course of this webinar. So Kara, let’s talk about the things that we are focused on, relative to our clients and the financial planning aspect of what we do.
Kara Duckworth: Okay, I think you have a good point about how we do seem to have some time on our hands to think about the things that are important. One of the things that is really important to us at Mercer Advisors is that comprehensive financial planning is the foundation of everything we do for our clients. We build financial plans that are based on you. We bring our expertise to the table in evaluating your assets, your liabilities, looking at your income, reviewing your risk planning, so that we know that you have a solid foundation that then we can use to optimize with estate planning and tax strategies. Only after evaluating all of these factors do we then make an investment recommendation. You’ll note that the investment portfolio portion of our wealth management pyramid is the smallest. Investments are simply one of the tools that we use in the financial planning process. There are far more options in our tool chest with financial planning than just investments. It’s important to understand how investments are most affectively used in your financial plan.
Doug Fabian: Now, let’s shift back to the markets. Don, I believe it’s time for us to just go over some of the basics of explaining to clients how markets actually work when it comes to available information.
Don Calcagni: I mean, if you really think about what a market is, and I don’t care if we’re talking about a market for stocks or bonds or exotic derivatives or used cars or Beanie Babies or Cabbage Patch Dolls for those of us who are older. It doesn’t matter. All markets fundamentally do is digest all available known information into the price of the asset, the security that we’re trading back and forth. It’s important to remember, Doug, that in every transaction there are two parties. There’s always a buyer. There’s always a seller. That’s why it’s mathematically impossible when you hear people say, “Everybody’s selling.” Well, that can’t be true. There has to be a [Inaudible 00:12:47] in order for somebody to sell. So, if you think about what markets do, they take all of that information and they use it to assess what is the future earnings prospects of a company, whether that be Boeing or IBM, based on this new information. What do the earnings look like? From there the two parties to the transaction, the buyer and the seller, they both interpret that information differently. But, they both have that information and they then agree to transact at a given price. That’s why markets are so efficient when it comes to setting prices. It’s because you have millions of sellers, millions of buyers all transacting in real time, in the world’s financial markets. Fundamentally, that’s what markets do.
Doug Fabian: Well, let’s drill down a little bit further on that, Don, and talk specifically about one individual stock, to help people really understand how markets work.
Don Calcagni: Absolutely, stock prices move very, very quickly. It’s not just stock prices. We’ll talk about oil here in a moment. But, if our listeners are looking at the screen, they’ll see that we’re showing you here a stock chart for Heinz, the condiment maker, the ketchup maker, the Pennsylvania company. When they were agreed to be bought out by Berkshire Hathaway back in 2013, you’ll see that the stock price immediately jumped on the announcement. You’ll see that line that just goes straight up. As soon as that news story broke, as soon as it was clear what Berkshire Hathaway was going to pay to buy every share of Heinz, the market immediately leapt up to precisely the price that Berkshire Hathaway was willing to pay to buy the company. That happened immediately. There were no transactions on that straight line up. There was just one transaction at a price of around $60. Then, the very next transactions was at around $72 a share. Markets move quickly. That’s why I’m often asked by clients or advisors, “Hey, is there a way we can try to get in front of this information? How can we use it to get an angle?” The reality is, you can’t. Your dial up is not quick enough, and even if you did have a really, really fast internet connection, there’s no transactions between the $60 and the $72. Doug, we saw that this past weekend when it became news to the world that the Saudis and the Russians Opecs failed to agree to new production targets for the oil cartel. Russia is not really a member, but they’re, like, an honorary member. The Saudi’s said, “Hey, we disagree. We’re going to produce more oil.” They told the world how much oil they were going to produce, and the price immediately on Monday morning…immediately Sunday night in the future’s markets, immediately fell 30 percent. There was no opportunity to even trade on that information. So, the moral of the story is, markets move very rapidly. Prices adjust very quickly to new information.
Doug Fabian: Well, let’s talk a little bit about declines in markets from a historical point of view and give people some context as to where we are right now.
Don Calcagni: It’s important to understand that declines are normal. Again, Kara, I want to echo what you’re saying. They are painful, so I’m not trying to minimize that in any way. But, the market never goes up in a straight line. Our veteran clients, our long-term clients who have been with us for many decades, they’ve experienced many rough markets. The reality is, if you look at the frequency of market declines…you’ll see that here on the screen, where a decline of five percent or more. That happens with a very high degree of frequency, about three times a year. Last time that happened was in June 2016. Actually, I would argue it also happened at the end of 2018. A decline of ten percent or more, a decline of 15 percent or more, you’ll see here there’s a frequency here. If you look at bear markets, a decline of 20 percent of more, they happen about once every six years. The last brutal bear market was in March of 2009. The market actually hit rock bottom on March 6 of 2009. That was actually the bottom. That’s when the market began to turn. I do think it’s an important lesson for our listeners to understand, Doug, that it’s always darkest right before the dawn. Right when the market feels like it’s going through this cathartic selling process. In reality, that’s how markets find their bottom, is there’s this catharsis where the market just overreacts, tends to overshoot on the decline. But then, ultimately, that’s when you see the buyers return to the market, lots and lots of buyers. That’s where the market ultimately, slowly begins to turn. But, point being here with this slide, Doug, is market declines are normal. They’re not unique. They are normal.
Doug Fabian: Well, let’s take a look at a little bit of history. This is almost a 100-year timeline that we’re looking at. But, this just reinforces the fact that bear markets are nothing new. Every time we’ve had a bear market, there’s been some sort of news event around it. Of course, the declines are sharp, but the recoveries are also significant as well.
Don Calcagni: It’s important for our listeners to understand, like I said earlier, bear markets aren’t new. But, the catalysts are new. The cause of the bear market is new. If we go back to the late 20s, the catalyst for the Great Depression was something completely different than the catalyst for the bear market that we had in 2008, 2009. 2008, 2009, that was a banking crisis. If we go back to the bear market of the early 2000s, that was the implosion of the dot com bubble and then subsequently the terrorist attack of 9/11. So, the causes vary, Doug, from bear market to bear market. But, if you actually look at market history, which is what I think this slide is showing us, is that each dip of red was subsequently followed by a very robust blue recovery. So, my point to our clients is, look, bear markets, I acknowledge they’re not fun. They don’t feel good. They can be very unsettling. But, every bear market has a beginning, a middle, and an end. This bear market will ultimately end. We don’t know when. I can’t say when. I can’t predict, but it will end. We want to make sure that our clients are fully invested for when this market does end, so that they can participate in the subsequent recovery.
Doug Fabian: Kara, what’s your perspective from a financial planning point of view on how you would be coaching clients in this bear market? What should be top of mind for them?
Kara Duckworth: I think really reflecting back on what our investment philosophy is, is important, Doug. At Mercer Advisors, we’re committed to owning assets that we think we want to hold for the long-term. They’re not companies that are speculative. We’re not making bets. We’re not trying to time the market. It’s important for our clients to understand that, and I know that I’ve heard Don say this in response to questions that he’s been asked in the past, when is the best time to buy? I’ll let Don finish that thought. But, I think that it’s important to remember that the time that matters to you when you buy is the day you buy it and the day you sell it. Everything that happens in between is just market noise, and I’ll let Don finish what his perspective on when is the right time to buy and sell.
Don Calcagni: I love that, Kara. I’m always asked, “Don, when is the best time to buy? When is the best time to sell?” My answer never changes. That’s from being an advisor for over 20 years. The answer is the best time to buy is when you have the capital, when you have the money. The best time to sell is when you need the money, when you need the money to fund lifestyle or pay for your children’s education or whatnot. I fully echo what Kara says, between the buy date and the sell date is frankly just noise. We want to buy assets that we want to own for the long-term. We want to own our investments. We don’t want to rent them for the short-term. We’re not market timers, we’re not market traders. We don’t rent portfolios. We own portfolios for the long-term.
Doug Fabian: Let’s talk about what happens following market declines and subsequently, how rapidly the market has a tendency to snap back.
Don Calcagni: I mean, what’s interesting is, and it’s true when you think about the mechanics of the market, Doug, is when you have the market going through a sharp decline and it feels like, even though I told you this is mathematically wrong. But, when it feels like everybody is selling and that nobody is buying, that’s frankly the best time to invest. That’s when the returns going forward are actually the highest. We’ve often heard Warren Buffet say that his secret to success is being greedy when others are fearful. Well, right now is frankly one of those times, to quote the oracle of Omaha. It’s worked out quite well for him personally, obviously. But, when we actually look at market returns after a bear market, you see that here on the screen. We’re just showing you returns after a 10 percent decline…I’m sorry one-year returns, three-year returns, and five-year returns. When you look at that you’ll see that those returns are actually above that dotted line. The average long-term return for the S&P 500 Index is 9.6 percent since July of 1926. But, you’ll see these bars. Almost all of the bars, with the exception of one case, is above that perforated line. What that means is returns are highest when you come out of these bear markets. Doug, this is why clients should remain fully diversified, fully invested going through that bear market, because those returns coming out of the bear market are significantly above average. But, you can’t benefit from those returns if you’re not in the market when the market turns. I’ll just give you an anecdote, Doug. In March of 2009, the Dow Jones, the S&P both hit their bottom on March 6. The best day in market history prior to this week, last week, I should say, was March 23, 2009. If you missed that one day in the market, March 23, 2009, your returns over the past ten years are a full one percentage point less per year than if you missed that one day in March of 2009.
Doug Fabian: Well, let’s talk about the market returns, a balanced investment strategy, which many of our clients are following and previous crises that we’ve had in the markets. Don, kind of walk us through this timeline here.
Don Calcagni: So, we’re just looking at several crises here, Doug. There’s been so many market crises throughout market history and I think we’re going to show you a slide of those here momentarily. But, what we’re showing you here is a balanced 60 percent stock, 40 percent bond portfolio after the crash of ’87, August of ’89. That was the savings and loans crisis. We had the Asian flu, the contagion that was in September of ’98. I was a derivatives trader back then. That’s when Russia defaulted on the Ruble. You’ve got the dot coms, 9/11. You’ve got ’08 with the bankruptcy of Lehman and so on and so forth. Unequivocally, Doug, you look across that perforated line, there’s that average market return of 9.6 per year. We’re showing you here the total return over the one, three, and five years following that crisis. If you look at ’87, which was the biggest one-day loss in market history, Black Monday, you’ll see that three and five years after that, the total return, 33, 76 percent, quite dramatic. Even if we go back to September 2008, the most recent bear market, three years after that a 60/40 portfolio had recovered and earned 12 percent. In fact, a 60/40 portfolio was positive four percent one year to the day after Lehman Brothers filed for bankruptcy. So, my point is this, markets do recover. A solid 60/40 portfolio that’s rebalanced regularly, which I’m sure Kara’s going to talk about, is well positioned to help clients earn great returns subsequent to bear markets. Again, I know that’s hard for us to see right now because it’s so dark before the dawn. I know that this is painful for people. But, it is important to understand that for each of these crises, they had a beginning, they had a middle, and they ultimately ended and life went on. Markets recovered and delivered quite handsome returns to our clients.
Doug Fabian: Kara, one of the issues that we’re dealing with right now is the uncertainty around the health crisis. But, when you connect back to these different crises in the past, they all had their own story. So, how do you coach clients through this uncertain period of time when we just don’t know what’s going to happen with this health crisis?
Kara Duckworth: I think as you pointed out, Doug, each one of these crises were different. There is no way to predict what the next crisis is going to be and what’s going to predicate that. That really speaks to the importance of having a diversified portfolio strategy to maintain. As Don mentioned, the portfolio rebalancing between the appropriate stock and bond allocation for your particular circumstance. I don’t think that there is any one of our clients who are currently has bonds in their portfolios that is now sorry that they had them, even when we had a really good return in the stock market last year. That really speaks to why diversification is important, why it works. We don’t know what the next crisis is going to be after we finish this one. We do know that being diversified and staying investment is going to deliver the best long-term returns.
Doug Fabian: Kara, you had put this slide in our presentation today. I’d just like you to talk about really what it means. One of the challenges, I think, that just all of us are having right now, is the amount of data and opinions that we’re getting on a day to day basis. So, talk to us about what these things mean.
Kara Duckworth: I think what’s really important is that we’re focused on a long-term outcome in financial planning and remembering, again, markets are only a tool to achieve your plan goal. But, because we are in, as you said, a 24/7 news cycle, and looking at that, it appears very dramatic. On certain individual days that is certainly true. But, when you’re looking at the overall return over decades and not just looking at the days, we certainly see those smooth out over time. We also need to keep in mind that we need volatility in order to be able to take advantage of the planning opportunities that are so important to your portfolio. So, if we look over the long-term, and the data supports this, that having a long-term investment viewpoint rewards investors who exercise this discipline in their strategies. That means we have to stay focused on the decades instead of the days.
Doug Fabian: Don, anything you want to add to that?
Don Calcagni: No, I think it’s critically important that we take Kara’s message to heart. By the way, Kara’s message…I mean, when I was in graduate business school, it’s probably the number one lesson that even really, really smart people tend to forget. It’s because we’re so fixated on data and information. Like Kara said, it’s a 24/7 news cycle. I think I have 12 different electronic devices around my house that I can get real-time stock quotes on. When you look at that short-term data, it can be very misleading because what really matters is that longer term data on the right-hand side of the screen. I’ve seen engineers and PhDs in mathematics forget a very simple lesson in mathematics. That is, short-term data is very noisy and it does not tell you very much about long-term trends. Very hard message for us to take to heart, but probably the most important message that I would hope our listeners take out of today’s webinar.
Doug Fabian: Well, let’s talk about being rewarded for discipline and obviously, we have another long-term chart here. But, we want people to understand that every crisis that we have ever experienced in the financial markets, in the history of our country, we have been able to overcome. So Don, what’s the message from what we’re looking at right now?
Don Calcagni: Well, what I love about this chart is, and I think Kara is going to agree with me on this. You see all these noisy headlines that the financial press just has a field day with. There’s always a crisis. I love the Business Week heading from I forget what month it was, but I think it was 1979. Front page of Business Week proclaimed the death of equities. They said, “The stock market is dead. Capitalism is dead,” and basically we should all be buying gold. Shortly after that, gold hit a record high. But, the reality is the stock market was not dead and the 1980s and 1990s was arguably one of the best stock markets in history. Point being, is that blue line, that’s that long-term multi-decade message that Kara is giving us. The little blue headlines, that’s the daily noise. Those are the crises of the day. Doug, I remember the debt downgrade. I remember Brexit. Brexit was over, frankly, in a week. I was in London when they voted on that. Market got hit really hard for about a day or two and then a week later it was all over. Point being is we’ve just got to focus on the long-term and really try to avoid the noise we see in the financial press. These crises, these were all…if you go back and actually read the newspapers from the time, these crises were all positioned as if it was the end times. There was a front page of Newsweek in 1998 that said, “Apocalypse Now.” We thought the world was ending because Russia defaulted on the Ruble. It wasn’t the apocalypse. Life went on. We recovered and things were okay. So, point being, is we should take Kara’s message to heart and really look at markets over a multi-decade timeline. I know, Doug, I often hear this from clients, “But, I don’t have a decade or two.” I would argue you do. Even a client who is 65 years old today still has a 20 maybe 30-year time horizon ahead of them. When you look at your portfolio, you’re not going to liquidate all of that the day you retire. That balance represents many decades of future income. You’re going to spend a very, very small fraction of that every week, every month, even every year throughout your retirement. So, I would encourage all of our clients to be thinking many, many…looking at the market in terms of decades, not weeks, not days, and not even years. I know that’s hard.
Doug Fabian: Well, we actually have volatility in many parts of our lives, not just in the financial markets. Kara, you’ve got a message you wanted to share with clients here.
Kara Duckworth: I just wanted to point out when we think about volatility and when we do see it in headlines and it is very stressful, that it is important to consider that volatility truly is in every part of our life. But, how you measure it, whether you’re looking at a financial market or some other way, is what informs your opinion on it. How you measure it matters. So, just as an example, we’ve got volatility in so many things, in personal relationships, in health. You wouldn’t measure the state of your health based on the run time you had when you were in college. You were 20 and you could run a 5K in nine minutes and 30 seconds. But, when you look at it now at age 65, your 5K time is now 14 minutes. Well, has your fitness level at age 65, is it 68 percent worse than it was? Of course not. You would adjust your expectations and think that a 14-minute 5K when you’re 65 is pretty darn good. You’d probably actually be happy that you could even do the average age group at age 65. Similarly, volatility exists in our personal lives, as well. You wouldn’t measure how well your relationship with your kids is going by comparing how well everybody got along this week. I’m guessing that if you have children in your house, that they’ve spent the week arguing with each other and wrestling. You can’t compare how they are behaving right now, in the home, as compared to how great everybody was doing and how harmonious things were when you had a perfect family beach day on vacation. So, it’s similarly not reasonable to measure your portfolio from the value at the market peak that we had just a bit ago, to the current balances. You have to keep in mind that volatility is expected in every part of your life and keeping perspective matters. The achievement of your financial goals are what we’re focused on, not the day to day variation and the volatility and to really keep that focus there.
Doug Fabian: Well, there’s absolutely some things that clients should be thinking about and that clients should be doing right now. So Kara, let’s walk through those from a financial planning point of view.
Kara Duckworth: Absolutely. I think to take the opportunity now, when we do have a circumstance in a bear market, to really work with us, to keep your financial plan up to date so you have good visibility on the progress towards your goal, to take actionable items that are going to be very effective to help you achieve them. So, we need your help, really, to keep your overall plan up to date. We need you to help us in telling us things like reviewing your income expectations, if those have changed or any things that you’re doing differently on your savings or your spending right now, due to current circumstances. That will help us be able to update your plan and review the success probability. Really, keep in mind that while they can be unpleasant, bear markets give us good opportunity to take quantifiable actions that can be positive for your long-term financial planning. Tax loss harvesting is a technique to capture capital losses in your portfolio now, that can be used to offset future gains. You’ve probably heard all of your advisors talk about that at the end of the year, when we do end of year tax planning. But, tax loss harvesting can happen anytime during the year, Doug, and it also gives us an opportunity when we do that to rebalance asset allocations, to get them into if a 60/40 mix of equity to fixed income is what works best in your circumstance to be able to get into those allocations for the long-term. So, if you do do tax loss harvesting, we can help you calculate the tax savings that will be available using those strategies.
Doug Fabian: Excellent.
Kara Duckworth: There’s a couple other things, Doug, and Don I know that we talk about this all the time when we’re looking at concentrated stock holdings or even mutual fund holdings. To explain that for our clients, you probably may have certain assets that you’ve been holding onto because the tax cost of selling them was just not appealing. Maybe you have stocks from stock options or you inherited them or you just have owned them for a really long time and they’ve appreciated. So, when bear markets happen, you have an opportunity to sell those [Inaudible 00:38:13] at a more reasonable tax cost, and then again, to better diversify your portfolio. So, to really be effective, this is an opportunity to do some tax loss harvesting and use that in conjunction with diversifying a concentrated position. That can really be much more powerful even further for your long-term financial plan results.
Doug Fabian: Don, as we’re drawing this webinar to a close, any final thoughts from you on what you want clients to take away?
Don Calcagni: Clients are often asking, “Hey, what are we doing right now in response to the market?” I would say there is at least two or three things. Number one is most of my days recently have been focused on looking for tax loss harvesting opportunities, working with investment committee, some of our sub-committees looking at certain loss opportunities. Our advisors, I know, are proactively discussing tax loss harvesting with clients. I would say that’s the number one action that we’re looking to capitalize on, to take advantage of what Kara was just communicating to us. Number two is we’re balancing. I know that’s painful, but selling bonds buying stocks and getting the portfolios positioned better to ultimately capitalize on an ultimate recovery post bear market. So, we’re balancing, looking for tax loss harvesting opportunities. I’m in constant communication with managers about their portfolios, what’s happening, what are they doing inside the portfolios. Even though we’re in the middle of a bear market, the normal day to day work that we do does not stop. We’re constantly evaluating manager fees, putting out parts of our portfolio for proposals to see if we can find somebody who can do that less expensively. So, all of the day to day work does not go away just because the market is down. So, all of those things are still continuing behind the scenes.
Doug Fabian: Thank you, Don. Thank you, Kara. I’ve just got a few messages for our audience before we end today’s program. First of all, we just want you to know that we are here for you. You’ve given us a tremendous opportunity to be able to work with your family. All of our client advisors, our team members are working hard each and every day to help you achieve and maintain your economic freedom. So, we’re going to continue, even though we’re all in a remote location. We’re going to continue to work with clients with telephone discussions, with virtual meetings. We want you to know at merceradvisors.com, that we have many resources for you. We have the podcasts. We have articles. We have updates. We did a webinar yesterday on the new Secure Act. So, if you would go out to merceradvisors.com and visit the website, there’s a lot for you to be able to consume out there and we also have an update on what’s going on in the markets relative to the health care situation right now. We’ve got updates there as well. So, ladies and gentlemen, we just want to say thank you for entrusting in us your economic freedom and we’re going to continue to work hard for you now and into the future. Thank you very much for joining us today. Don and Kara, thank you as well.
Don Calcagni: Thank you, Doug.
Kara Duckworth: Thank you very much.
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