Regatta Tradewinds Vol 13 No 3

Tradewinds Navigating Life & Finances

OCTOBER 5, 2020 / VOL 13, NO 3

Join us in welcoming our Newest Financial Advisor!

See What’s Inside Regatta Global Core Select Update Intro to Qualified Small Business Stock

2020 Benchmark Returns: 9/30/2020 MSCI All Country World Index: 1.37% S&P 500 Index: 5.57%

Morningstar Moderate Target Risk Index: 2.34% US Aggregate Bond Index: 6.79%

Our Newest Chartered Socially Responsible Investing Counselor Residential Real Estate Responds to COVID-19 Pandemic

NEWSLET TER / OCTOBER 2020

The Financial Stages of Life

By Kristin Grant, Financial Advisor Associate & Director of Financial Education This time of the year is one of my favorites because it is the culmination of family traditions. One of my favorite family traditions is the annual family gathering at my grandmother’s house where we eat a delicious home cooked meal and have a $25 gift card exchange. I remember not being able to participate until I had income of my own. To some degree, we all have been impacted by the beliefs and rituals of our upbringing, especially considering our perceptions about money. Throughout our life journey, we experience a multitude of life events that impact our financial needs. I have summarized those events into 3 stages: the accumulation stage, the preservation stage and the distribution stage.

At the accumulation stage, our initial financial needs are usually met by our guardians. We are provided with the essentials but as we get older we formulate our own aspirations about money. Whether it is learning how to budget, saving for a large asset, gifting shares of stock or regularly giving to a charity each of these traditions instill important values and define our relationship with money.

Here is where the birthing of financial traditions take form. This stage tends to be longest and has no set age limit on when you start. A personal favorite tradition of mine is the “pay yourself first” practice where you automate your savings.

Once a solid foundation is established, you advance to the preservation stage. Here is where

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different milestones in your life cause for different aspirations, a newfound independence. You begin to make optimal use of your time and energy and reevaluate risks for the betterment of the household. This may look like acquiring life insurance, establishing a trust and will, or revising your investment portfolio. The key point is each family member is involved and taking an active approach towards the end goal of financial freedom. This may be the time where unexpected life events occur. However, staying true to your values and traditions will supercede any situation.

your wealth and ensuring the family is aware of the wealth transfer plan.

The distribution stage is usually the part of financial planning that is most ignored. 70% of families tend to lose majority of their wealth in the second generation and by the third generation that number increases to 90%. This sounds alarming because it is. Leaving behind a family legacy is only possible when you have ensured all the estate planning is up to date. A legacy is not only the inheritance but it’s the education and traditions that are passed down. Make it a tradition to have those important coversations.

That is true generational wealth.

Once you have approached the distribution stage in the financial life cycle, this is the most important stage of them all. Your commitment to your financial goals are met and you are living off the income you’ve acquired over the years. However, the work is not over. Now you are faced with the responsibility of protecting

Whether you are in the accumulation stage or distribution stage, we all have a responsibility to the younger generations to incorporate healthy financial habits. Family financial traditions are the gift that keeps on giving.

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S T O C K M A R K E T U P D AT E

Executive Summary

By Russell Mohberg, Co-Founder & Chief Investment Officer

Over the past year, ending 9/30/20,

the DJIA is +7.6%, the S&P 500 is +8.5%, and the NASDAQ is +11%.

On Regatta’s approximate $500M of AUM, which does not include our group 401k plans, our net return has been +9.53%. We are very proud of this result considering the drag on performance we have from $41 million in cash, $11 million in Enhanced Cash, and $93 million in Bonds.

This year has been an incredibly challenging time but in the chaos there have been opportunities. Focusing on the DJIA companies YTD (9/30), you first see the decimation: Walgreens -39%, JPMorgan -30%, Chevron -40% and Coca-Cola -11%, and then the triumphs: Apple +57%, Salesforce +54%, Microsoft +33% and Home Depot +27%. You may notice that some of the more “conservative” dividend paying companies were also the worst places to be this year.

This counterintuitive performance is one reason we believe that (regardless of your age) innovative companies should be in your portfolio.

The most popular question we received this quarter was, “Why is the market going up when things are so bad?”. The market is now dominated by large tech companies that were

less affected or benefited from Covid conditions. Amazon, Facebook, Apple, Microsoft, and Google were the big solution providers, whereas restaurants, gyms and entertainment venues have very little presence in the stock market. The airlines, hotels, and cruise lines are also in a world of hurt but they are not large enough to impact the overall stock market.

Moreover, the stock indices are market cap weighted, meaning, the larger the company the more it affects the performance. The convergence of the largest companies being less affected by Covid and the largest companies counting the most in the indices, is masking the pain being felt in many smaller companies.

In addition to these factors, keep in mind that the investment markets are global. With Covid still raging around the world, where would

you invest your money if you were a wealthy business owner in Brazil, India, Italy or Spain, etc.? Money comes into the US from around the world, especially in the environment of historically low interest rates.

Side stock -42%

note: The Brazilian market is down about YTD, and Spain -24%.

In a world of low interest rates and so much uncertainty right in front of us, what should one do? We are reducing the amount of investment managers that we are working with to improve the quality and our conviction. We are focusing more on what is working now, what companies are beating earnings, essential real estate for income, asset backed income and renewable power. The path forward is not to lie down but to seek solutions that will make it through the storms that will come.

Time will march forward regardless of uncertainty and each day is valuable in the fight for your income and growth. Then the secret sauce is good old-fashioned planning that ensures that you are in the position to be patient during the storm.

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NEWSLET TER / OCTOBER 2020

An Introduction to Qualified Small Business Stock

By Ellen Himmel, JD & Erika Jenkins, CPA Qualified small business stock (QSBS) is an important issue that our clients should be aware of because if a stock is QSBS, the person who holds it may be eligible for up to 100% exclusion from federal tax on the capital gain realized upon the sale of the QSBS, subject to certain limitations.

This article will briefly outline the requirements that must be met for stock to be eligible for QSBS treatment. The treatment of QSBS is covered under the Internal Revenue Code (§1202) and has evolved through amendments over the years. The lowering of the corporate tax rate to 21% under the Tax Act and Jobs Act of 2017 has made the formation of C corporations more attractive and opened the up the possibility of QSBS tax treatment.

The requirements for qualifying for exclusion of federal taxes on gains from the sale of QSBS include the following: 1. The taxpayer recognizing the gain must not be a corporation and must have acquired the stock directly from a C corporation, otherwise known as original issuance, in exchange for money, property or compensation for services.

2. The taxpayer must have held the stock for more than 5 years.

3. The aggregate gross assets of the C corporation that issued the stock cannot be greater than $50 million at any time before (and including the time immediately after) the issuance of the stock to the taxpayer.

4. At least 80% of the C corporation’s assets must be used in the active conduct of one or more “qualified trades or businesses”. Qualified trades or businesses include those engaged in technology, retail, wholesale and manufacturing. Certain businesses are specifically not eligible and those are companies involved in health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, and brokerage services.

5. The issuer of the stock must not have engaged in specific redemptions of its own stock during specified periods before or after the date of issuance of the stock to the taxpayer.

A taxpayer who recognizes gain from the sale of stock meeting the above requirements can qualify for 50%, 75% or 100% exclusion from tax depending upon when they acquired the QSBS.

There is a cap on the amount of gain that may be excluded. Briefly, that cap is the greater of $10 million or 10 times the taxpayer’s adjusted tax basis in the QSBS. Clearly, this presents an opportunity for significant tax savings.

If the 5 year holding period has not been met, but the QSBS has been held for at least 6 months, the taxpayer may be able to rollover the proceeds of the sale of the QSBS stock into another C corporation that meets the QSBS requirements and defer the taxation of gain.

It should be noted that California does not conform to the QSBS exclusion and the gain will be subject to tax in California.

This is intended as a summary only. Please let us know if you would like more information.

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FIRM UPD ATE Please join us in welcoming our newest Financial Advisor and Director to the team, Ben Satterfield!

Prior to joining Regatta, Ben worked at Griffin Capital in Los Angeles where he gained an in depth understanding of institutional real estate funds and private placements.

Please read more about Ben at regattainvest.com!

www.regattainvest.com

Regatta Global Core Select

By Britt Joyce, Financial Advisor, Co-CIO & Director of Endowments & Foundations When talking about stock market behavior, the phrase “it’s different this time” is widely regarded in intellectual circles as a sign of ignorance. It is often a sign that someone has not read their financial history. But sometimes forces in the world bring about a true step function of change. The need to socially distance during this pandemic has shifted behavior massively in some ways that will never completely go away.

Most people have found that working from home is better than they expected. When the dust settles, we will see that many office workers no longer endure long daily commutes or require expensive office space. Staying at home more has benefited many companies that we own in Global Core Select, such as:

Zoom (+89%) offers video conferencing, making it almost a “pure play” on social distancing. Zoom has been adopted so rapidly by such a large number of people that it is now ubiquitous. This has a self-reinforcing mech- anism since people are now comfortable scheduling Zoom calls knowing that that the person they are calling already knows how to use Zoom. This provides Zoom with growth and protection against competitors.

Peloton (+57%) sells very popular stationary bikes, treadmills and at-home fitness video streaming. Gyms are not the safest place to be during a global pandemic so many people have bought bikes and treadmills to build out their home gyms. Now that the equipment is paid for, many people will keep paying for access to the re- mote workout classes rather than restart their more expensive workout classes or gym memberships once the pandemic is over.

Apple (+26%) has helped equip many home offices and home study areas for young kids who now use devices to log into their school’s remote learning platform (often Zoom!). My first grader is now fluent at using Zoom on her own iPad even though as recently as January I would have hoped that day was still years away.

Thanks to the above-mentioned companies among others, this was another strong quarter for the Global Core Select stock portfolio. This model portfolio finished up 13.1% for the quarter and 20.0% over the last 12 months, comfortably outpacing the broader stock market.

The Regatta Financial Weather Report Key Economic and Market Indicators

Economic Growth Forecasts 2020

U.S. Retail Sales Growth, 1 year

2.6%

Recovered 6% since May 2020

US

-5.9%

U.S. Unemployment Rate

7.9%

Below expectations of 8.2%

Euro ex UK

-7.5%

Inflation (CPI)

1.3%

Highest rate since March 2020

UK

-6.5%

Manufacturing Economic Health (PMI)

53.5

Largest expansion since Jan19

Japan

-5.2%

S&P 500 Valuation (Forward P/E Ratio)

21.90

Gradual decline since Sep19

EM

-1.0%

China

1.2%

India

1.9%

World

-3.0%

Source: TradingEconomics.com, ycharts.com)

Interest Rates 30-year mortgage, fixed

3.04%

Lowest historical rate

Money Market

0.22%

Steady decline towards 0

Five-year CD

0.63%

Steady decline

Prime rate

3.25%

Down 1.75% from a year ago

Source: OECD

Source: wsj.com/market-data/bonds

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NEWSLET TER / OCTOBER 2020

Residential Real Estate: Aren’t we in a Pandemic??

By Brian Mollo, Real Estate Consultant Real Estate was a significant contributor to the Great Recession of ’07-‘09 due to the subprime mortgage crisis and a historical wave of foreclosures.

This time around residential real estate is one of the few bright spots in a distressed economy. How is this possible?

In most recessions, more people than normal cannot pay their mortgage.

But over the last several months, folks who have lost their jobs have been able to receive unemployment benefits and $600 in federal stimulus funds per week under the CARES Act. Pair this with the ability for anyone to get forbearance from their lender and this has kept those mortgage defaults in check. Additionally, FHA has extend-

ed its foreclosure moratorium through the end of the year. So will we eventually see a foreclosure tsunami again?

While housing is being propped up, it certainly won’t play out the same way.

Lending has been much stricter, banks are more capitalized, and homeowner’s have more equity in their homes.

close eye on how these government programs and the long term Covid economy affect the housing market is prudent during these unprecedented times.

Home prices are actually accelerating due to pent up demand and low inventory, or supply. Sales of existing homes are soaring at a record pace and extremely low interest rates are also contributing to this seller’s market.

Despite a pandemic, residential real estate saw only a brief hiccup earlier this year. Of course, no one can predict the future, especially with no historical blueprint to reference. Keeping a

What is a Chartered Socially Responsible Investing Counselor?

By Lee Clay, CSRIC Financial Advisor, ESG & Impact Investing Specialist

The CSRIC (Chartered SRI Counselor) designation is a professional designation afforded by the College of Financial Planning, the same organization that administers the CFP®. In order to qualify for the CSRIC designation, applicants have to take a graduate level course and successfully pass an exam focused on Sustainable and Socially Responsible investment theory including the history of SRI, techniques for applying SRI practices, how investments are evaluated and ranked by their Environmental, Social, and Governance scores, how the incorporation of ESG analysis can lead to better risk adjusted returns, the role that advisors play in incorporating ESG analysis into investment strategies, and the future implications and projections for sustainable, responsible, and impactful investment practices.

In an ongoing attempt to remain hungry, curious, and become a better advisor, I recently completed this course and am now one of only a few thousand people around the globe who’ve been afforded the title of Chartered SRI Counselor. For our clients who have a passion for all things sustainable and impactful, I hope that gaining this additional education will allow me to better serve your needs and values. And for our clients who prefer a more conventional investment approach, I’d challenge you to allow me to show you how incorporating ESG analysis into your portfolio can help you to reduce risk without sacrificing returns.

Let us help you grow while using your dollars to have a positive impact on your community and the world at large.

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www.regattainvest.com

Finance-ology PER STIRPES- In Latin, the phrase means “per branch”. Per Stripes is a term you will see

when establishing beneficiaries for an account or establishing a will. It is an estate planning concept that describes the method of distributing assets for a deceased individual. When a parent passes away, the children are entitled to receive an equal portion of the estate. If all the children are living then each would receive a share. But, if the deceased parent’s child has passed before the recently deceased, that child’s share would be divided equally among the deceased child’s children.

For example: A grandmother passes and leaves an equal share to her children, the grandchildren will receive their parent’s share in the event of their parent passing before the disbursing of assets.

This is different from the per capita term where all living parties, regardless of lineage, receives an equal portion of the estate.

Front Row: Nick Ozer, CFP®, Lisa Margulies, Grace Yu, CFA, Lee Clay; Back Row: Spencer Kelly, CFP®, Ellen Himmel, JD, Russell Mohberg, CFP®, Kristin Grant, Britt Joyce, CFA, Marc Joyce, JD, Erika Dumandan, CPA; Not Pictured: Lindsey Diranian, Ben Satterfield

If you have comments or questions, please do not hesitate to reach out to us at info@regattainvest.com

Main Branch Office

Westchester Branch Office

Brentwood Branch Office

Spencer Kelly, Nick Ozer,

Lisa Margulies

Ellen Himmel

Britt Joyce, Lee Clay, Ben

7135 W. Manchester Avenue, Ste 2

12011 San Vicente Blvd. Ste 320

Satterfield & Russell Mohberg

Westchester, CA 90045

Los Angeles, CA 90049

880 Apollo Street, Ste 129

Office: (424) 255-1045

Office: (310) 471-6461

El Segundo, CA 90245 Office: (310) 725-9102 7

Regatta Newsletter Volume 13, Number 3 Editors: Kristin Grant Russell Mohberg, CFP®

880 APOLLO STREET, STE 129 EL SEGUNDO, CA 90245

Contributing Editor: Spencer Kelly, CFP® Contributors: Venessa Robinson Grace Yu, CFA, FRM Britt Joyce, CFA, CFP® Lisa Margulies Erika Jenkins, CPA Ellen Himmel, JD Nick Ozer, CFP® Lee Clay, CSRIC Marc Joyce, Esq. Brian Mollo Benchmark Data Source: Tamarac, Inc Your personal performance report has been posted to: https://regatta.portal.tamaracinc.com

ABOUT US

Regatta Capital Group We are unabashed in our commitment to scouring the investment universe to find the best possible solutions for our clients and their money. We know there’s an easier way to manage money, but

R

egatta Capital Group provides investment management and financial planning advice to individuals, families, business owners and endowments. The firm manages more than $600 million for clients in Los Angeles and more than 25 states.

we choose to take the road less traveled.

For example, we invested in Facebook pre-

Learn more at www.regattainvest.com

IPO, own clean energy facilities and have directly invested in over 50 private, multi-family apartment building LLCs. ©

2020 Regatta Capital Group, LLC. All rights reserved. Reproduction by any means is prohibited. While data contained in this report are gathered from reliable sources, accuracy and completeness cannot be guaranteed. All

data, information and opinions are subject to change without notice. Investments referenced are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value. Past performance does not predict future results.