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Location, Location, Location
Anyone buying a home or a piece of real estate has heard their agent declare the three most important things about a piece of property are: location, location, location. In other words, all else equal, a home or business in a desirable location is more valuable than a similar one in a less desirable location. Location is the key determinant of success.
In the investment business, "asset allocation" takes the prize as the most important factor determining success. By dividing a portfolio among a mix of stocks, bonds and non-traditional assets --- including those whose returns move up and down under different market conditions --- investors can protect against significant losses.
However, at New Market Wealth Management we take asset allocation a step further. Just like our colleagues in real estate, we also consider the importance of asset
location.
Asset Location
Where you put your investments can make a major difference in how much you earn, after tax, over time. That's because different investments are subject to different tax rules, and different types of accounts have different tax treatments.
How Does It Work?
As a general rule, we place the most tax-efficient investments in taxable accounts, and the least efficient in tax-deferred or tax exempt accounts.
Most clients come to us with both taxable accounts (usually personal assets or trusts) as well as retirement accounts that may be tax-exempt (e.g. Roth IRAs) or tax-deferred (e.g. 401k plans). Once we go through the exercise of determining a client's unique investment goals and the level of risk they can tolerate, we devise an asset allocation plan and then locate those investments in the appropriate taxable or tax-exempt accounts to minimize the tax drag (see tables to the right for examples).
Too often we see portfolios where the Financial Advisor has simply applied the identical asset allocation to their client's various accounts across the board.
Adding an asset location component to your investment strategy requires an advisor to look at your accounts holistically, something many professionals are unable or unwilling to do.
Disclaimer: Once the asset allocation and location are established, this is not a set-it-and-forget-it strategy. A good advisor will also carefully consider your liquidity needs and how to trade and rebalance all the accounts in unison. At New Market we do exactly that with an eye towards tax-efficiency, minimization of transaction costs and maintenance of our clients' designated risk level.
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The Nasdaq composite has been the clear winner this year, but last week it fell for the second week in a row as traders locked in profits on their FAANG stocks (Facebook, Amazon, Apple, Netflix and Alphabet's Google). Volatility returned to these mega-caps as Amazon shares got a big bump following the surprise announcement that it was acquiring Whole Foods Market for over $13.7 billion.
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> Balance Sheet Reduction: Last week the Federal Reserve raised the Federal Funds rate and at the same time, announced its plan to begin reducing the balance sheet.
The Fed will stop reinvesting the principal of securities when they mature, saying it would ultimately have a balance sheet "appreciably below that seen in recent years but larger than before the financial crisis." In practice, this means when a 10-year Treasury on the Fed's books comes due, the money it gets back from that investment will not be used to go out and buy another Treasury.
> Housing Starts: Residential investment looks to be a negative for second-quarter GDP. The housing starts report, the latest of which was released Friday, is the most closely followed report on the housing sector. Housing starts reflect the commitment of builders to new construction activity, and the latest report was a disappointment, falling an unexpected 5.5% in May and continuing the downward trend.
> Disruption in the Grocery Sector: As long term investors, we're not advocates of watching the daily movements of any one stock or sector. However, with Friday's blockbuster announcement that Amazon was buying Whole Foods for nearly $14 billion, the market reaction in the sector was dramatic and hard to ignore.
Amazon became the world's biggest retailer by disrupting one business after another and if this deal goes through, the grocery industry is likely to be forever altered. One day's worth of valuation changes might not mean much in the long run, but it's an area of the market worth watching in the months and years to come.
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Why You Should Curse and Scream
We've all heard elite tennis players grunting on the court. Now it appears that yelling or grunting at the right moment has been linked to boosts in power and pain tolerance.
Scientists suspect that grunting boosts power by "increasing sympathetic drive," or a response of the sympathetic nervous system, which controls the body's fight-or-flight response.
"Basically, grunting increases your adrenaline, which gives your muscles a momentary boost in power," says
Daniel Heller
, a physician at Blue Ridge Orthopaedic and Spine Center in Warrenton, Virginia. "Simply exhaling won't give you the same jolt."
Swearing, it turns out, can have similar benefits. And if you're okay with possibly offending bystanders, swearing is even more effective than screaming for reducing pain.
Cussing triggers a jolt of strength-boosting adrenaline. Researchers suspect that shouting helps ease discomfort by preventing pain signals from reaching one's brain. "Swearing is usually tied to emotional situations," says Dangaia Sims, a data scientist with a PhD in sports psychology. "While swearing doesn't necessarily equate to fear, cussing may almost trick the brain into thinking a threat is imminent." So next time you're at the gym, instead of just sweating it out, go ahead and shout it out!
For additional information and links to the scientific studies, click here.
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New Market Wealth Management offers modern investment solutions backed by extensive research and experience serving the needs of wealthy families. Through our strategic partnership with
Cliffwater LLC
, we provide institutional-quality research, investment due diligence and asset allocation tools. We believe this level of experience and unique access to in-depth, sophisticated research are essential for success in today's complex world markets.
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