Strubel Investment Management

2019Q4 Quarterly Client Letter

By Ben Strubel - January 21, 2020

Dear Clients,

It seems like the market in 2019 was the exact opposite of 2018. In 2018 we had multiple large stock market drops as everyone seemed to be worried about anything and everything. In 2019 the market seemed to just climb higher without any big surprises.

I think these past two years offer a great look at why people find investing so hard. At some point it always seems like the sky is falling and the world is about to end and the market is down 20%, but give in to the worry and sell and then you’ll lose out on the gains that follow. That’s why I think one of the most important things an advisor can do is build a plan for clients and then help them stick to that plan.

Changes for 2020

As I mentioned in my previous letter I had been looking at replacing TradePMR and FOLIO Institutional as custodians. Just to be clear, nothing is changing with me or my business or your relationship as clients. Essentially all I’m looking at doing is “firing” TradePMR and FOLIO and “hiring” a different company to hold client accounts.

What prompted this move is that companies like Schwab, TD Ameritrade, Fidelity, and others have lowered their trading commissions to zero. After carefully researching all of the options I’ve decided to “hire” Schwab. Schwab will be covering all of the costs associated with transferring accounts so you will not have to pay anything. Also, accounts will be transferred over “in kind” meaning that nothing needs to be sold in the accounts so there will not be any tax issues for clients.

You might be wondering how Schwab makes their money if trading is free? Well, first other fees are not going to zero. So, if you want to write out checks from the account, do a wire transfer, or other add on services they still cost money. Second, these companies make money similar to how a bank does and earn interest on the cash in your account.

Market Update

Global stocks returned 30.80% and the S&P 500 returned 31.49% so far.

Here’s how other assets performed in 2019:

US Total Bond Market: 8.71%
International Government Bonds: 7.88%
Investment Grade Corporate Bonds: 13.97%
Inflation Protected Bonds: 8.28%
Real Estate: 28.91%
Emerging Market Stocks:20.40%

(All the returns listed are those of the ETFs we use.)

Again, as a reminder, your portfolio will contain a combination of most or all the investments listed, so its performance will be a blend of all the returns.

Outlook for 2020

Probably the biggest piece of news for 2020 is that the US and China finally reached “Phase 1” of a trade deal.

Despite this deal, not much really changes. China has agreed to re-start agricultural product purchases but the level of purchases might not be much more than what China was purchasing before (it will make “best efforts” to increase the amount though). In return the US has rolled back some tariffs and frozen the implementation of any new tariffs.

I’m not so sure this agreement is big enough to make businesses believe the trade war is over or well on its way to being resolved. I hope I’m wrong, like most people I’d love to see the economy booming and doing well. However, there is still a large amount of uncertainty and as I’ve stated in previous newsletters it’s easier for companies to simply “stay put” and hold off on new investments. Imagine spending millions or billions to build a new plant in China (or another country) only to find out it’s un-economically because of changing tariffs. It’s much easier and cheaper for companies to just sit around and wait. Maybe expand an existing plant somewhere, open a new production line, add a third shift, or just run a factory at 99% utilization.

The good news for US investors is that the US economy is largely dominated by US consumers. So long as the US consumer remains healthy the US economy should at least muddle through. During this economic expansion we’ve already experienced recession in Europe and in Japan without it effecting the US economy to any significant degree so there is no reason to expect this time to be any different.

Reminder

Although you are all familiar with my investment management and retirement planning services, I want to take time in this newsletter to remind you of the other financial services I offer.

These services are available to clients as part of their comprehensive fee. I work with clients to build monthly budgets, help pick the best credit card offer, and give advice on their existing company retirement plans. Almost anything related to finance or money is something I’m available to help you with. I’ve even helped clients with non-financial things, such as picking out a new car. I enjoy helping clients, so please do not hesitate to give me a call. Shoot me an email or text if there is any way I can be of assistance.

How is Ben Invested?

Here is how my personal portfolio (my SEP IRA at FOLIO Institutional) is positioned for 2018.

My investment breakdown is as follows:

  • 31% in our Capital Appreciation Folio
  • 32% in our Concentrated Stock Folio
  • 31% in our Aggressive Growth ETF Portfolio
  • 1% in Real Estate (Vanguard Real Estate Index, VNQ)
  • 1% in Emerging Market Stocks (Vanguard Emerging Market Index, VWO)
  • 1% in Investment Grade Bonds (Vanguard Total Bond Market Index, BND)
  • 1% in Inflation Protected Bonds (Barclays iShares TIPS Index, TIP)
  • 1% in Municipal Bonds (iShares S&P National AMT-Free Municipal Bond Index, MUB)
  • 1% in International Investment Grade Bonds (Vanguard Intermediate Term International Bond Index, BNDX)

As you can see, I have a stock-heavy portfolio. I believe our strategies for investing offer the best opportunity for long-term wealth creation.

Note: I also have an older IRA account opened during grad school. That account is invested in one stock, Philip Morris International (PM).

 

Sincerely,

 

Performance Disclosure:

The performance data presented prior to 2011 represents a composite of all discretionary equity investments in accounts that have been open for at least one year. Any accounts open for less than one year are excluded from the composite performance shown. From time to time clients have made special requests that SIM hold securities in their account that are not included in SIMs recommended equity portfolio, so those investments are excluded from the composite results shown.Performance is calculated using a holding period return formula, reflects the deduction of a management fee of 1% of assets per year, and reflects the reinvestment of capital gains and dividends.

Performance data presented for 2011 and after represents the performance of the model portfolio that client accounts are linked too, reflects the deduction of management fees of 1% of assets per year, and reflects the reinvestment of capital gains and dividends.

The S&P 500 and Dow Jones Developed Market Index are used for comparison purposes and may have a significantly different volatility than the portfolios used for the presentation of SIM’s returns.

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In providing you with financial products and services, or information about such products and services, SIM may collect public and non-public personal information about you from the following sources:

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  • Transactions with SIM
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SIM regularly provides notices to its customers regarding its privacy policy. SIM reserves the right to change this policy, and to apply changes to information previously collected, as permitted by law. If there is any change to this policy, SIM will provide its customers with a revised privacy notice.