Tradewinds Navigating Life & Finances
JANUARY 4, 2021 / VOL 13, NO 4
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See What’s Inside The Future is Coming Home California’s New Estate Transfer Law
2020 Benchmark Returns: 12/31/2020 MSCI All Country World Index: 16.25% S&P 500 Index: 18.40%
Morningstar Moderate Target Risk Index: 12.82% US Aggregate Bond Index: 7.51%
Retirement Plan Tips for Small Business Owners What is a Special Purpose Acquisition Company (SPAC)?
N E W S L E T T E R / JA N UA R Y 2 0 21
The Future is Coming Home By Spencer Kelly, Co- Founder & Head of Advisory Services
We will never live through a year
like 2020 again. It was an incredible, surreal, gut-wrenching year. Our hearts go out to all of those who have been affected by COVID, especially those who lost loved ones. Over 20 million Americans have tested positive for COVID, about 6% of our population, and more than 361,000 Americans have sadly died from complications due to COVID. The stock market started the year strong and initially peaked on Friday, February 19th. Then the coronavirus worsened, continued to spread across the globe and began to quickly infect US citizens. We realized we had no understanding of this virus. How did it spread? How deadly was it? How would we fight it? How badly would it hurt our economy? It was truly the great unknown. Markets hate uncertainty. So, in 20 frantic trading days the market fell off a cliff, dropping about 35%, bottoming on Monday, March 22nd. The 2008 Financial Crisis focused on housing and the banking system, leading to a generational recession, but the spread of COVID was different. It was scary. It still is. We felt momentarily blind, but then the changes became clear. We stayed home, sheltered in place. And then we adapted. We are not prone to sitting idle. We spent more time with family, took walks in our neighborhoods, hopped on Zoom calls with family, and if we were fortunate enough, we kept working. And worked hard. I am true believer in how industrious and resilient we are as Americans. As a country we pushed forward. Here at Regatta, we saw you, our clients, change where you spent your time
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and money – no more big trips or fancy restaurants – more time was spent online and extra dollars went into our homes. At Regatta, we took note, found opportunities, and invested accordingly.
During times of uncertainty, it always feels different. I heard this a lot in March and April: “It’s different this time” and it absolutely was. Each new crisis will almost always ‘be different’. What stays the same is the opportunity uncertainty creates for the bold, long-term investor. While the entire world was locked down in early April, we began looking for investment opportunities. The ‘stay-at-home’ portfolio gained steam and we believe this investment theme still has many more years to play out. The future is coming home – and it’s not because of COVID, but rather it’s been accelerated by COVID.
2020 could be judged only on what headlines and news anchors tell us. But we should also look around our own lives and judge the year based on how we adapted, supported each other and rooted for each other. And we stood up for what is right through the Black Lives Matter movement. But this cannot be a moment in time – we must The office came home of course. collectively fight for equality every Going forward, before every day of our lives. potential business trip, we will first ask ourselves if this can be handled Democracy also thrived. As citizens, over Zoom or with DocuSign? we got involved. 75% of Americans The taxi industry already changed. who could vote, did vote. This is Uber and Lyft now amazing. 210 million of 330 million meet us where we Americans are over the age of 18. In are – which is the this year’s election 158,212,080 of overarching message us got out and voted. The numbers to all companies and prove that we truly do believe in and big business: if you care about our country. want our dollars, you have to come to us and make it convenient. The For the second election big box retail store is dying, as we in a row, the market all know. How can they compete popped up after the with Amazon? Walmart saw the results were in. Why? writing on the wall a few years ago Again, markets hate and bought Jet.com. The retailers uncertainty. Once that thrived and gained market there is clarity, markets calm down and share in 2020 – Nike, Lululemon, stabilize. Do not forget who makes Williams Sonoma, Target – did so up the “market” – it is you and me; it’s because they had proactively built all of us and our collective sentiment out a harmonious online and inand confidence in the future. If we person shopping experience. always wait until the sun is shining to invest, we will consistently miss the Did you watch Wonder Woman best buying opportunities. 1984 on HBO MAX? This was a
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huge moment for the movie industry. It was the first time a blockbuster movie was released simultaneously in theaters and at home, without having to pay an extra one-time fee for the movie. The movie theater has been coming home for many years with our big screen HD TVs, surround sound speakers and increased access to big budget content. These trends have also drastically improved the athome viewing experience for sports fans. This leads us to the casino and specifically the Sportsbook coming home. For those that want to gamble, you will no longer have to find your local casino or head to Las Vegas. States are quickly legalizing online and mobile sports gambling and DraftKings, MGM, Penn National Gaming, and many more are well positioned to benefit from this trend. The gym found its way into our living rooms and bedrooms. We had no choice. Fitness is important to so many of us. Peloton was in the perfect place to capitalize on this trend. Although I miss my gym and I know many others do as well, Peloton will adapt and capitalize on a future where we stay connected to our fitness goals both at home and at the gym. This synergy is also important in the medical profession. The future
doctor’s appointment will first be are also craving experiences – remote before it’s in-person, with which is why we love Airbnb. the help of companies like Teledoc. Many of our favorite pastimes and experiences were taken from Grocery stores and restaurants fall us in 2020. Travel, concerts, into this camp as sporting events, bars, restaurants, well. Instacart, weddings, family reunions, trips Amazon Fresh, to museums, theater and of DoorDash, Uber course, Disneyland. At Regatta, Eats and Postmates we see the inner workings of now meet us at thousands of household’s finances our doorsteps. and budgets. We see where our We all miss our favorite bars and time and money is spent. Great restaurants – the best of them will investment opportunities will survive and welcome us back with surely not be far behind. open arms – but I bet we don’t miss all those overpriced cocktails Most importantly, even with all and expensive bills. Speaking of we’ve been through in 2020, I getting out of the house, who really hope we have learned and grown enjoys going to gas stations? In 10 from this year. Regatta certainly years, we will look at our friends has – our primary mission is who still go to the gas station like to better serve you, the client we now look at our friends who – to make sure you have a plan, don’t have a smart phone. The gas to grow your money and to be (charging) station will be in our on your side with expert and driveway; Tesla and other electric timely advice. We are incredibly vehicles will be everywhere. thankful, as always, for your continued trust and confidence. We know our time is valuable We are obviously living through and maybe we have a newfound an historical time. So, let’s appreciation for a balanced life continue to appreciate all that we and time with family. Maybe we have, show empathy and patience also realized we need a bit less to with others, and strive to be our be happy? It’ll be interesting to best – not only for ourselves, but follow the spending habits post- for our families and for the future COVID. Even with so much of our communities. available to us from home, we
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 At the end of the dismal first quarter of 2020, we wrote a very significant line in this newsletter, “we are here for you if you need help working through financial difficulties, but we are also here for you if you want to take advantage of this buying opportunity unfolding across just about every in-
dustry…it is time to start going on the offensive.” How could we be so sure that this crisis was a buying opportunity and not the beginning of a depression? We saw COVID-19 as a hurricane like event, not a financial markets crisis event, and we knew the central banks would flood the system with whatever it took to right
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N E W S L E T T E R / JA N UA R Y 2 0 21
the ship. The market hit an “uncertainty air gap” during February and March and it fell until it had confidence in government intervention to support the financial markets. The stock market bottomed on March 26th, well before jobs, or the economy or earnings got better. Those normal indicators got much worse before they reversed trend, but the stock market began looking out to Q3 and then Q4 and then to 2021, and it saw a strong recovery coming. The dissection of “the year that was” is a fascinating topic but let’s begin to look forward. Companies are generally valued based on their future earnings and their stock prices rise and fall as the expectations of those earnings are exceeded or not met. The aggregation of all those expectations becomes the estimate for the stock market. The best analysts that we follow estimate Q1 2021 will see +12% year over year growth, followed by a whopping +40% for Q2 and +11.9% for Q3.
Now don’t view this as an inside tip of the magical future
F IR M UPDATE We are excited to announce our new social media presence! Follow us today!
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to come, institutional investors know these projections, and this explains the run up that we have seen over the last six months. These estimates are adjusted daily and they have been steadily improving since July. There were misperceptions that the vaccine would take longer and may not be effective, but as those perceptions changed the earnings and future estimates have increased. Looking deeper at sectors, here are a couple of examples that illustrate the expected magnitude of the recovery for 2021 in a couple hard hit sectors: Basic Materials +37.3% Q1, +96.3% Q2, 23.9% Q3, and Aerospace +9.3% Q1, 169.3% Q2, and +36.9% Q3. Again, stock performance does not match earnings growth but it does correlate and then is adjusted based on to the degree the earning expectations are exceeded or not met. These strong earning estimates and low interest rate environment means that we have a favorable environment for stocks to advance in 2021. However, (the dreaded however) there is plenty that concerns us. We will get beyond the additional permanent damage caused by COVID-19 as we wait for the vaccine to roll out, but will fears of higher taxes and regulations begin to weigh on investors and companies? If the 2017 tax act was a boon to investors, will the reverse be a bust? Next up is the fear of rising interest rates. Higher rates hurt growth stock valuations more than value stocks and thus engine of this market may stall if bond markets demand higher rates. This could come from GDP growth that exceeds expectations or if other countries begin to demand higher rates since we are printing the money we use to pay them back. On balance though, with careful asset selection, we are bullish on 2021!
We are pleased to announce Regatta Capital Group has inducted our first non-founding Managing Partner, Nick Ozer! Nick started his career with us in 2015 and since then has evolved into this leadership role by not only building a highly successful financial planning and investment management practice, but also serving the firm as the Director of our group retirement plan business. We would like to congratulate Nick and thank him for his expertise and dedication to our profession, his clients, and our entire firm.
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Establishing a Company-Sponsored Retirement Plan By Nick Ozer, Managing Partner, Financial Advisor & Director of Retirement Plans
Writing this before the New Year, there is a new quietness. A quietness that only a pushed-back deadline can give you. With the SECURE ACT, we were given a reprieve from the year-end deadline to establish new company retirement plans. Meaning, small business owners now have until the tax deadline (plus extension) to establish a new 401k plan*, profits sharing plan or defined benefit plan. This surely helps business owners assess the year that has passed and make decisions with all the prior year’s information available. How profitable is your business? How much would you like to pay in taxes and how much would you like to defer into pretax retirement accounts? These questions are now less speculative, and that is a good thing for decision making! *Note employee contributions to 401k plan still must be made in the calendar year. For companies with under 100 employees, these plans have also become more affordable to establish. 1) The Retirement Plans Startup Costs Tax Credit has increased from up to $500 per year to up to $5,000 per year. The tax credit is the greater of (1) $500 or (2) the lesser of (a) $250 multiplied by the number of non-highly compensated employees of the eligible employer who are eligible to participate in the plan or (b) $5,000. This setup tax credit is available for the first three years of the plan. 2) The SECURE ACT also introduces a new tax credit of $500 per year for any new or existing plan that adds automatic enrollment to their 401k plan. For the right small business, this can equate to a $16,500 total tax credit in the first three years of a plan. That should help get things rolling!
The Regatta Financial Weather Report Key Economic and Market Indicators
Economic Growth Forecasts 2021
U.S. Retail Sales Growth, 1 year
4.1%
Recovered 6% since May 2020
US
3.1%
U.S. Unemployment Rate
6.7%
Slight decline since last quarter
Euro ex UK
5.2%
Inflation (CPI)
1.2%
Highest rate since March 2020
UK
5.9%
Manufacturing Economic Health (PMI)
57.1
Strongest growth since Sep ‘14
Japan
2.3%
S&P 500 Valuation (Forward P/E Ratio)
24.19
Recovering from prior quarter
EM
Source: TradingEconomics.com, ycharts.com)
Interest Rates 30-year mortgage, fixed
2.90%
Lowest historical rate
Money Market
0.20%
Steady decline towards 0
Five-year CD
0.56%
Steady decline
Prime rate
3.25%
Down 1.75% from a year ago
6%
China
8.2%
India
8.8%
World
5.2%
Source: OECD
Source: wsj.com/market-data/bonds
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Prop 19: California’s New Property Tax Transfer Law By Marc Joyce, Esq. & Benjamin Kingston, Esq. of Regatta Trusts & Estates
California voters enacted Prop 19 into law by a 1% majority this past November as part of the "Home Protection for Seniors, Severely Disabled, Families and Victims of Wildfire or Natural Disasters Act." Prop 19 provides relief for these groups facing increased property taxes by allowing them to exclude all or part of the newly purchased home from property tax reassessment. Conversely, Prop 19 reduces certain property tax benefits for gifts and sales between parents, children, grandparents and grandchildren (collectively “Families”).Prop 19 goes into effect on February 16, 2021.
UPSIDE
Prop. 19 permits qualifying groups (those 55 or older, those with certain disabilities, and victims of wildfire or natural disaster) to transfer all or some of their home’s existing tax basis to a newly purchased home anywhere in California, depending on the difference between the sales price of their existing home and the purchase price of their new home. One may do this up to three times during their lifetime.
DOWNSIDE
Prop 19 removes certain property tax benefits on inter-family property transfers, either during lifetime or after death, in two ways.
First, Prop 19 eliminates the unlimited property tax reassessment exclusion on inter-Family property transfers of primary residences, and caps all inter-Family property transfers at up to $1M of the If the purchase price of the new home is less than or equal property’s current-assessed value. to the sales price of the hold home, these groups can fully transfer their old property tax basis to their new home. Second, under Prop 19, the Family member transferee must use the property as their own primaIf the purchase price is greater than the sales price, these ry residence to qualify for reassessment exclusion, groups will be reassessed on the partial difference. For where previously there was no such use requireexample, if a qualified seller sells their home with a cur- ment. rent property-tax basis of $500,000 for $1 million and buys a new home anywhere in California for $2 million, the new home’s property-tax assessed value will be $1.5 million, which is the $500,000 assessed value, plus the $1 million difference between sales price and purchase price.
Prop 19 provides qualifying homeowners with greater flexibility to sell their home and move to a new home anywhere within California and completely or partially maintain their current property tax basis. However, inter-family transfers are excluded from reassessment only 1) up to $1M of current-assessed value, and 2) if the transferee uses the property as their primary residence. Transferees might decide to quickly sell the property if the $1M cap is significantly exceeded, or if they do not wish to use it as their primary residence.
To learn more about Proposition 19, please feel free to contact us or your respective estate attorney. Learn more about Regatta Trusts & Estates at www.regattalaw.com.
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Finance-ology SPAC-
A special purpose acquisition company is a publicily traded company that was created for the sole purpose of raising capital through an initial public offering (IPO) in order to acquire other targeted private companies to publicaly trade them. SPACs are also classfied as “blank check companies” because the intial IPO investors are lending money without any idea of what company they would ultimately be investing in. For this reason, SPACs do not have to have any operating assets. The money acquired from IPO investors is held in an interest bearing trust account over a two year time frame until an acquisition is complete. If an acquistion is not complete within the time frame, the investor’s funds are returned. Once a private company is acquired, it is then publicly listed on an exchange. SPACs have gained popularity over the recent years due to a higher valuation and quicker IPO process.
Front Row: Nick Ozer, CFP®, Lisa Margulies, Grace Yu, CFA, Lee Clay, CSRIC; 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 4 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 Benjamin Kinsgston, Esq. 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-
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IPO, own clean energy facilities and have directly invested in over 50 private, multi-family apartment building LLCs. ©
2021 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.