Tradewinds Navigating Life & Finances
APRIL 5, 2021 / VOL 14, NO 1
The Regatta Family is growing!! Meet our two new team members!!
See What’s Inside Regatta’s Global Core Select Brief 2021 Tax Season Reminders
2021 Benchmark Returns: 3/31/2021 MSCI All Country World Index: 4.57% S&P 500 Index: 6.17% Morningstar Moderate Target Risk Index: 2.17% US Aggregate Bond Index: -3.37%
Coaching & The Family Dynamic Travel Tips for a Post-COVID world The Modern Workforce
N E W S L E T T E R /A P R I L 2 0 21
The Road to Recovery
By Russell Mohberg, Co-Founder & Chief Investment Officer
The
strong run in the U.S. stock market has continued from last year. During the first quarter, the S&P 500 was up 6.35% and the Dow 8.35%. However, the white-hot leader from last year – the Nasdaq 100 - was only up 1.84%. Amazon finished the quarter down -2.95% and Apple -7.15%. Some of the standouts for the quarter in Regatta portfolios were companies such as Wells Fargo +30%, Alphabet +20%, Williams Sonoma +79%, while Pepsi and Unilever were laggards, down -3.38% and -6.62% respectively.
The U.S. stock market was driven to new highs despite the worries of increased taxes, interest rates and inflation. The $2 trillion of additional government stimulus continues to fuel economic growth and unemployment nationwide sits at only 6%. Short-term and long-term interest rates remain low, which fuels mortgage refinancing and home purchases. We find that in times like this many of our clients want to take on more risk than usual; “things are going so well and covid is almost over, and people are making so much money” goes the thinking. We are in the camp of “participate when times are good but also beware and be more selective when many stocks are trading at premiums”.
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Risks and Opportunities Interest rates have risen dramatically over the past three months. The 10-year treasury yield went from 0.93% to 1.72% (+84.9%). The 30-year mortgage rates increased from 2.67% to 3.17% (+18.7%). These long-term interest rates are set by bond market investors. When more bonds are being sold vs bought, it pushes rates higher. On the other hand, shortterm interest rates are set as a range by the Federal Reserve and are currently 0% to 0.25%. The Fed has repeatedly stated that it will keep short-term rates at this level until sometime in 2022. This means your bank deposits are unlikely to earn anything for another year. Talk with us if you have more than a few months of savings at the bank; we have enhanced cash solutions that will earn more with minimal value fluctuation. Interest rates have very tangible impacts on our clients lives but you may not realize how they also drive stock prices, especially growth stock prices. When the 10-year treasury yield rose in earnest during February most growth stocks took
a dive. The reverse was true last year, when interest rates fell, growth stocks rose. This relationship has to do with how stocks are valued based on future cash flows. The sharp rise in rates is one reason why we have seen massive declines in the growthiest stocks in the market. For instance, Plug Power fell from about $70 to $30 since February. Keep that type of volatility in mind when you think you might want to chase a hot stock. In addition to rising interest rates, investors are also worried about high stock valuations in certain pockets of the market, the printing of money leading to high inflation, and the potential for corporate tax increases. We are focused on adjusting our asset allocation to take these risks into account but are also putting money to work in our stock portfolios, real estate, renewable energy, private equity, and other types of alternative income. Diversification and specific investment selection are even more important when interest rates are abnormally low and we cannot rely on quality bonds for income and stability.
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Regatta Global Core Select
By Britt Joyce, Financial Advisor, Co-CIO & Director of Endowments & Foundations
Any MBA student studying finance will learn a variety of formulas to help make sense of investment markets. There is even an extremely simple formula for calculating a stock’s fair price (P):
Sadly, knowing each of these three inputs would require a clear view (AKA “crystal ball”) into the future of the company and the overall financial markets. However, this model helps me greatly in thinking conceptually about a stock’s valuation and how that valuation should change when one of the three inputs changes. Most people intuitively understand that a business’s value is a function of its profitability which drives its dividends (D1), and they are viscerally drawn to companies with lots of growth potential (g). But they often fail to grasp the other variable (r) which fluctuates with the level of interest rates.
Interest rates have been the key variable moving markets this quarter and over the last 9 months. As you can see with the formula above, lower interest rates mean higher stock prices, all else equal. The drop in rates during the pandemSounds great, right? If we just buy the one ic is the main thing that has pulled markets higher over the last 12 months. stock that is currently trading at the biggest discount to its fair value based on this formula, While tinkering with these inputs, we see that faster growing companies (higher “g”) then we are all destined to become billionaires are far more sensitive to changes in interest rates than companies growing profits in no time! Right? Not exactly. Here is why: more slowly. Falling rates helped “growth stocks” in recent years, but we saw that trend reverse this quarter. As the yield on 10-year Treasury bonds increased from 1. “D 1” is the stock’s dividend payment less than 1% at the beginning of this year to over 1.7% in recent days, value stocks one year in the future. We can not know have outperformed handily for the first time in a quite a while. For example, growth for sure what dividend a company will pay stocks Tesla, Qualcomm and Zoom are down more than 9% this year, while “old in a year because it depends on the com- economy stocks” Capital One, JP Morgan and Home Depot are up more than 16%. pany’s future profits and decisions made by its board of directors. Also, many stocks have never paid a dividend before, so how do we fit them into this formula? 2. “r” is the “required rate of return for this stock”. In other words, what rate of return would a prudent investor need to expect from this stock to compel them to buy it given the company’s riskiness, etc.? This is an extremely debatable number, and it depends on future risk-free interest rates and the market’s perception of a stock’s risk level.
For the $50 growth stock mentioned above, a 1% increase in interest rates would change its fair value to $33.33 = $1/(0.09 - 0.06), which is a decline of 33%. Contrast that with a value stock that has the same dividend amount and required return but is expected to grow its dividend at a slower 2% per year. Its fair value would be $16.67 = $1/(0.08 - 0.02) before rates go up, and $14.29 = $1/(0.09 – 0.02) afterwards, which is a decline of just 14%. Overall, this hypothetical growth stock is more than twice as hurt by rising rates and helped by falling rates as the value For example, imagine a growth stock that stock is. is expected to pay a $1 dividend in a year. If it can be expected to grow the dividend In Regatta Global Core Select, I have made several trades to better position the by an impressive 6% per year, and if a rea- portfolio for this potential reversal, which was inevitable, yet impossible to time. sonable investor would accept an 8% rate After outperforming the markets meaningfully last year, I am just as proud that our of return for owning it, then the stock’s portfolio kept up this quarter in a market that has favored the opposite type of price should be $50 = $1/(0.08 - 0.06). stocks. And it all comes back to those boring old interest rates! 3. “g” is the constant growth rate of the company’s dividend payment, extrapolated out in perpetuity. This future growth rate is not knowable, and it certainly will not be constant.
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N E W S L E T T E R /A P R I L 2 0 21
2021 Tax Season Reminders
By Erika Jenkins, CPA, Controller & Director of Tax Strategy Even though the year 2020 is behind us and we very much want to forget about it, we still must look back to it to prepare and file our 2020 taxes. As the economy is still being impacted by the ongoing COVID-19 pandemic, the Internal Revenue Service has implemented a few changes to the tax-filing deadlines and procedures. While not exhaustive, here are a few things you need to know (or be reminded of!): I. The 2020 individual tax filing and payment deadline has been moved to May 17, 2021. No need to file an “extension” form and California conforms to this extension. II. Individuals still have until May 17 to contribute to their 2020 traditional IRAs, roth IRAs, or Health Savings Accounts.
III. 2021 estimated taxes are still due on April 15, 2021. IV. The stimulus checks are not taxable. If you are entitled to either first or second round of stimulus, but have not received it, it is treated as a refundable tax credit (a dollar-for-dollar reduction of taxes owed). This is reported on the “Recovery Rebate Credit” form on your taxes.
V. Any eligible expense paid with Paycheck Protection Program (PPP) loans are fully deductible, whether forgiven, in process to be forgiven, or not. The loan forgiveness application must be approved by the Small Business Administration to be forgiven. Note: as of date of publication, California does not conform to this. VI. The American Rescue Plan (ARP), passed in March 2021, makes the first $10,200 ($20,400 if married filing jointly) of unemployment benefits tax-free if the annual household income is less than $150,000.
VII. The ARP also mandated that excess Affordable Care Act premium subsidies for 2020 do not have to be repaid back.
VIII. For eligible self-employed individuals, a new Form 7202 Credits for Sick Leave and Family Leave is made available in February 2021. To claim these credits, generally, the self-employed individual must have conducted a trade or busness and be eligible to receive qualified sick or family leave wages under the Emergency Paid Sick Leave Act.
IX. The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in March 2020 allowed for:
source: https://www.irs.gov/newsroom/new-irs-form-available-for-self-employed-individuals-to-claim-covid-19-sick-and-family-leave-tax-credits-under-ffcra)
a. People under 59 ½ to take up to $100,000 out of their 401ks and IRAs without penalty. It is still subject to ordinary taxes, though. This can be reported all in 2020 or in equal amounts over three years (2020, 2021 and 2022), thus spreading the liability over three years as well. This is reported on a new IRS Form 8915-E.
b. Required minimum distributions were not mandatory in 2020, so if it was returned, it must be properly reported on your tax return as follows: The amount on Form 1099-R must be reported on Line 4a of the 1040 form, then you subtract the amount properly and timely returned to the IRA and report the remainder on Line 4b (taxable amount). If possible, write “Rollover” on the line next to 4b to let the IRS know why the numbers do not match.
These are unprecedented times, and it is imperative to work closely with your CPA and tax preparer this tax season if any of the above applies to you. If you have any other questions, please reach out to Regatta Capital Group.
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The Modern Workforce
By Kristin Grant, Financial Advisor Associate & Director of Financial Education For most people in the corporate setting, traveling to an office for work is the standard. Throughout my career in Accounting & Finance, I’ve always worked in the office setting. As some of you may know, I would be the first person you greet when you walk into our El Segundo office. Well, since the pandemic, like many others in various industries such as IT, Education, Sales etc., I have been working remotely from home. Since working from home, I admit I do not work the standard 8am - 5pm schedule with an hour lunch break. I schedule my work time around a categorized list of tasks to complete for that day. Some days this means working until 7pm and on others it’s taking an extended lunch break due to a lighter workload. Each day varies, but I find I have fewer interruptions and ultimately more independence which contributes to my overall productivity not only in my “work life” but personal endeavors as well. Ultimately, I‘ve implemented healthier daily routines which has been great for my mental health. Not to mention, I have also been able to incorporate more time for my family and add a new hobby. Call it a newfound balance, if you will. By adjusting to the remote work lifestyle, I find I have become more skilled at time management and my mood has enhanced. These two things alone make me a better asset to the team.
home measures that were implemented last year, managers simply had to adapt. 70% of full-time employees were working from home. With the assistance of video conferencing software and cloud services, employees have proven how efficient and in fact more productive they are despite working from home. Managers reaped great benefits as well such as lower overhead costs and increased employee retention. Must I add, this is also contingent on whether the remote measures are fit for your industry and how they are implemented. As we continue on this road to economic recovery in a post-pandemic world, more companies are bearing witness to how beneficial remote benefits could be for their employees. Studies show more than half of the US workforce will continue working remotely at least part time after the pandemic. By 2025, at least 20% of the workforce will be fully remote. Although last year was mentally tough for all of us, the silver lining is we have succeeded with accelerating the modernization of the workforce as we know it.
Before the pandemic, the ability to work from home was mostly available for special arrangements. It was a concept most managers did not see fit for their company. Due to the stay-at-
The Regatta Financial Weather Report Key Economic and Market Indicators
Economic Growth Forecasts 2021
U.S. Retail Sales Growth, 1 year
9.55%
Double the annual average
US
3.1%
U.S. Unemployment Rate
6.2%
Rate was 3.5% a year ago
Euro ex UK
5.2%
Inflation (CPI)
1.68%
Steadily increasing since 03/20
UK
5.9%
Manufacturing Economic Health (PMI)
64.70
+31.77% from one year ago
Japan
2.3%
S&P 500 Valuation (Forward P/E Ratio)
21.35
-13.56% from one year ago
EM
Source: TradingEconomics.com, ycharts.com)
Interest Rates 30-year mortgage, fixed
3.27%
slight hike since last quarter
Money Market
0.10%
Steady decline towards 0
Five-year CD
0.47%
Steady decline
Prime rate
3.25%
Same rate 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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N E W S L E T T E R /A P R I L 2 0 21
Coaching & the Family Dynamic
By Lisa Margulies, Financial Advisor & Branch Manager As an advisor, I have sat behind my desk or on phone calls listening to the concerns of families for decades. Money is called currency. In a real way, it is the “electricity” of our lives. It flows through us and we need to store some of it for future use. Providing for a family is a very vulnerable subject and is subjective. We try to make it mechanical and objective. The mechanics of money and the occasional shockingly electric and subjective nature of family dynamic around money has zapped families and my heart more than once over the years. The handshake between subjective goals and objective goals becomes exaggerated with time and aging. I like to describe wealth in terms of relationship and riches in terms of money. As I have walked with individuals through decades of life and have experienced outcomes of both successful family units and unsuccessful ones, I would like to offer something to think about. The most powerful bond is that of Par-
ent-Child. This is a bond that is meant to evolve so that the child becomes individuated. Individuation is about allowing three separate persons (mother, father, child) collaborate and to create with respect for both likes and differences. In my experience, what really happens is that parent-child relationship rarely evolves. Parents want to remain parents. Children want to remain children. This is a formula for difficulty. Aging often returns us to a child-like vulnerability. If a parent cannot receive support with dignity from their children, it can be difficult. If adult children cannot respect each other, much less the wishes and dignity of the parent, it can become utterly heartbreaking and many times adding extra expense with litigation.
responsible, family wealth of experience is deep and wonderful, especially during the late stages of aging. Family mechanics of money and riches are smooth and efficient. These subtle distinctions can prevent a lot of painful misunderstandings. Financial planning begins with an individual or couple and nearly always ends with a team that supports them. Are you creating wealth of connected relationship to go with the mechanics of your money? As registered investment advisors, we welcome deeper than just the money conversation around financial planning. If you would like to talk about your family dynamic and receive support, we are here.
That is why I find “wealth” more usefully paired with relationships and “riches” usefully paired with money. Of the families that grow and evolve into a team of individuals who are connected, loving, respectful and
Post-Pandemic Travel Tips By Lindsey Diranian, Financial Advisor Associate & Director of Client Service
As an avid traveler, my biggest struggle during the pandemic was trying to navigate the safest way to continue my favorite hobby while working in a remote world. I grew up in the Northeast spending my winters skiing in the icy mountains of New Hampshire. Since March 2020, I have been fortunate enough to safely travel across the country and take the necessary precautions to protect myself. On December 3rd, Governor Newsom encouraged Californians to “Get Outdoors: Go Skiing”. I took this to heart and have fortunately been able to travel to several states via air to maintain this hobby. Ski season may be coming to an end, but I wanted to provide some travel safety tips to make you all aware that it is possible to safely travel during this unprecedented time: 6
• If you are flying to a destination, make sure to check the incoming destination protocols before arriving (i.e testing before hand, quarantine requirements, etc) • Book a private shuttle, rent a car, etc. (try to avoid any group transportation - Ubers, Lyfts, shared services) • Try to pick non-holiday weekends for traveling so destinations are less crowded • Carry extra wipes and hand sanitizer to wipe down all surfaces while in the airport or airplane, as well as any public spaces you may encounter (this includes wiping down TV remotes, light switches, etc. at your lodging location). Do not rely on the cleaning service! • Wear your mask throughout the airport and the entire flight and try not to move/touch your face or use the restroom while on the flight (if possible) • Limit the amount of time spent indoors (hotels, restaurants, bathrooms, etc)
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Finance-ology SHORT SQUEEZE -
This is a trading term that describes what happens when a group of investors manipulate the price of a security. In order to understand what a short squeeze is, one must understand the term “short seller”. A short seller is an investor that borrows shares of a stock/commodity they believe to be overvalued. They purchase expecting the price of the security to fall where they in turn return the shares for a lower price and pocket the profit. A short squeeze transpires when short seller holds the security for a period expecting the price to decline yet, other investors are purchasing that security as well which causes the price of the security to rapidly increase. If you have more purchasers, the short seller then has to pay a higher price to return the borrowed security, “squeezing” them out of profit. Understand this is highly speculative activity.
FIRM UP D ATE Please join us in welcoming our newest team members :
Cole Thompson & Grant Nabell
Cole is our new Financial Advisor Associate & Director that works closely with Spencer and Lindsey. Grant is our new Client Service Associate that works closely with Nick, Britt & Erika.
Please read more about our team at regattainvest.com! 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, Cole Thompson, Grant Nabell
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 14, Number 1 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. Lindsey Diranian 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 $700 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.