How we avoided the recent market carnage

Perry & I had an exciting morning after today’s radio broadcast. Our April Stock Market Update webinar had 79 registrants and 53 attendees – new records for both. Registration is promoted to get a replay if someone has a scheduling conflict. Today we explained step by step from November 6th how we avoided the recent carnage.

Here is the link to watch:

It is 45 minutes. I think you should watch it as part of your NMP education – both process & marketing.

The Drawbacks Of Target Date Mutual Funds

Retirement Advisor

The Drawbacks Of Target Date Mutual Funds

It is basically the “set it & forget it” retirement investment choice for the fiscally apathetic.

Target Date Mutual Funds

Your investment choices may be very limited within a typical employer 401K plan. You most likely will have access to target-date mutual funds from only a single provider. If your choices are severely limited, you, as an astute investor, can’t shop for the lowest fund costs let alone the ones with better returns.

The average target date retirement fund had a 0.73% expense ratio in 2015, according to a Morningstar report.
They went on to state that target-date funds also often charge higher fees than other types of mutual funds, because these funds will pass through the fees charged by the underlying fund options that comprise the fund as well as its own management fees. This can substantially reduce the return posted by the fund over time. Investors who bypass target-date funds and invest directly in the underlying funds can avoid some of these fees, although they will be responsible for manually reallocating the funds to match the glide path of the target-date fund over time.

Target-date funds can provide hands-off investment management for many investors, but buyers should do their homework on the particular fund that they choose before investing. Although these funds can effectively put a retirement portfolio on autopilot, they often reward you with lower returns in the long run.

“Target-date funds don’t necessarily mirror the performance of the larger stock and bond markets. Instead, their returns depend on the mix of their individual portfolios, and in some years, their returns may be very disappointing.”

Higher fund costs and poor exit timing
Investors who purchase target date mutual funds outside of an IRA or qualified plan will unexpectedly realize capital gains (and thus trigger capital-gains taxes) on a regular basis as shares of the funds that have performed well in the target-date portfolio are sold off and moved into shares of funds that have not performed so well. Because of this disadvantage, target-date funds are commonly used inside tax-deferred retirement plans in order to avoid this problem.

The glide path (the transition from an aggressive portfolio to a conservative one) can also vary substantially from one target-date fund to another, which means some funds are exposed to a great deal more risk than others by the time their target date arrives. Some will still have 70% of their portfolios invested in stocks at the target date, while other target date funds will only have 30% of their assets still held in equity funds. If you’re considering using a target-date fund, first take a close look at the allocation of a target-date fund from the same fund family that is about to mature or has already matured. This can help you to determine whether the target-date fund you’re looking at will match your risk tolerance at the target date.

Fund timing may be incorrect for you
Because the glide path changes the fund asset allocation over time, a target-date fund may end up selling at lows and buying at highs.  Investors are then less likely to recoup their losses than if they held the same investments outside of a target date fund and waited to sell until the market improved.

Why is this so important?
Why should an investor care about target-date mutual funds, their fees and transparency? Well, the big reason is this: Many plan sponsors are automatically enrolling their workers into 401K plans and then automatically investing their money into certain types of default investment alternatives (or QDIAs) in the absence of participants directing their own investments. And more often than not, target-date mutual funds have emerged as the dominant QDIA selected by plan sponsors.

Many investors also leave their money in cash, either because it was the default option when they opened their employer 401K and they never changed it or because their unfamiliarity with investing makes them too afraid to do anything else. In fact, the Target Date Retirement mutual funds which have become a staple on most employer sponsored 401K plans were inspired as a default placement for new enrollees. Target Date Funds not only give investors an easy, no research choice but also help reduce the liability claims towards the plan sponsors when cash was previously the sole default choice.

As more young workers get defaulted into target-date mutual funds and these funds become the primary retirement investment vehicle, it benefits 401K investors to pay some attention to whether your plan sponsor has picked appropriate TDFs for you, for the plan and whether that suits your personal retirement goals and investor profile.

“These (target date) funds are also not immune to some well-worn fund and 401K maladies, including possibly high fees and a presumptuous belief that active management can consistently beat passive indexing.”
– New York Times

Most Target-Date Fund Managers Won’t Even Invest In Their Own Funds!!
Morningstar went on to report the stunning fact that “only three (target-date mutual fund) managers invest more than $1 million of their personal assets in the target-date mutual funds of the series they manage. More than half of the industry’s target-date series are run by managers who have made no investments in the target-date funds they oversee”.
Ponder that statistic for a moment. If the majority of fund management won’t even invest in their own target-date retirement funds….why should you?

“A vast majority of 401K’s offer only funds run by the plan provider. For the providers, keeping all assets in-house makes plenty of business sense. But for plan sponsors, who have a fiduciary responsibility to run the plan for the benefit of employees, being able to pick and choose among different managers would offer the chance to package a target date mutual fund made up of best-in-class funds. ING reports that only 6 of the 21 largest target-date funds now use nonproprietary funds.”
– New York Times

Need A Consultant?

So, should you invest in your employer’s 401K account if you’re confused and looking for help with your retirement?  We can manage your 401K, TSA, TSP, Simple Plan or Pension Plan.   If your portfolio lost more than 10% in the last recession, you need to take another look at how you are managing risk.  Consulting with a professional investment advisor at Research Financial Strategies will help you to make important 401K decisions.

How Can We Help?

Jim Streight James Streight Chief Marketing Officer

Just say NO to Pie Charts!!

Just say NO to Pie Charts!!

At one time in the past, color pie charts were the pinnacle of timely investment management advice.
Not any more!

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Investment Portfolio Pie Chart

You can always find one of the infamous pie charts when you thumb through your company’s 401K account on your their retirement plan provider web site. The pie chart shows you how your company retirement plan account is currently invested in a mixture of stocks, bonds, and money market funds. Easy to understand and visualize.
Most financial advisors would be willing to show you, at your earliest convenience, how your investable funds should be invested now. And in pie chart living color. This core investment management advice concept has not changed in over 75 years!

When the next market downturn comes, many investors who think they’re protected may be surprised. Merely being invested in different types of stocks and bonds isn’t good enough anymore.

At Research Financial Strategies, we learned many stock market declines ago (there have been 16 bear markets with an average loss of 38% each to date¹) that the asset allocation assumptions shown in a pie charts do not work very well when the stock market is going down.
First, it is important to understand that pie charts can not help predict what your investment returns will be in the future. All computer generated asset allocation programs are based upon historical investment returns. Pie charts are always based on the assumption that stock market investment returns will always be positive. Pie charts are not programmed to have any memory of the last 75 years of negative investment returns for the S&P 500 index during the 16 bear market corrections. This cookie cutter style of investing assumes your needs and investing expectations are the same as everyone else. A bad assumption to make, but one that is easiest for the large investment houses. 

Investment Pie Chart, Diversified Investments, Diversified Financial Investments, Diversified Stock Investments, Financial Advisor, Financial Advisor Near Me, Investment Adviser, Financial Adviser, Business Advisor, Retirement Advisor

Making future investment return assumptions based upon historical relationships is financially dangerous. As a current reminder, remember how the current generation of Baby Boomers always thought that real estate values would rise forever? The housing bubble was an ugly reminder with most areas coming close to recovery a decade later.

Second, pie charts don’t react to the most important investment management decisions that have to be made periodically in a company retirement plan account.  Pie charts can not react to the constantly changing worldwide political, economic and stock market events. Professional money managers can’t afford to rely on the theory behind pie chart asset allocation.  Instead, these professionals make investment management decisions for their clients based on what is really happening in the financial world, instead of “what should happen” or “what has happened historically.”
Computers and students of history can’t predict the economic and stock market reactions to budget deficits, bank failures, recessions, real estate price depression, record unemployment levels and entire foreign governments defaulting on their debt. Humans have to make the investment management decisions in reaction to those events as they happen.

Third, pie charts can’t help you define or manage your investment risk level. The truth is the most company retirement plan investors have no earthly idea what their attitude towards investment risk is at any particular time.  The only thing that most company retirement plan (401K) participants would ever agree on is that after the stock market goes down in a big way, they always wanted to have taken less risk with their company retirement plan account than they actually did BEFORE the stock market went down.

The Pie Chart Problem
What do all those slices of pie really mean? Do more pies, and more slices, imply greater diversity?
It is important to understand that diversification isn’t designed to boost returns. Unfortunately, for many investors, the pie chart can be misleading. The goal of “diversification” is to select different asset classes whose returns haven’t historically moved in the same direction and to the same degree; and, ideally, assets whose returns typically move in opposite directions. This way, even if a portion of your portfolio is declining, the rest of your portfolio is more likely to be growing, or at least not declining as much. Thus, you can potentially offset some of the impact that a poorly performing asset class can have on an overall portfolio. Another way to describe true diversification is correlation. We want to own asset classes that are not directly correlated.

Unfortunately, even though a pie chart may make it look like an investor is safely diversified, it’s probably not the case. They are probably much more correlated to the market than they realize. Making matters worse, investors with multiple different families of mutual funds often own the exact same companies across the different families. We call this phenomenon “stock overlap” or “stock intersection.” You may own 10 different mutual funds, but the largest holdings in each fund are the same companies.

There was a fascinating study done in the late 1970s by Elton and Gruber. They concluded that a portfolio’s diversity stopped improving once you had more than 30 different securities. In other words, increasing from one or two securities up to 30 had a big improvement. Increasing from 30 all the way up to 1,000 different securities didn’t materially improve the portfolio’s diversity.

Consider that the next time you open up your quarterly statement. How many mutual funds do you really own? How many individual stocks are inside all of those mutual funds?

So, pie charts can’t really do what they are advertised to do. The measure of how something works is a function of how well it is used, and pie charts are clearly used in the wrong way by most financial advice professionals.
They obviously don’t make pie charts that guarantee investment returns as nobody in the financial industry can, react to real world stock market price moves, or help to preserve company retirement plan principal in the early stages of a stock market decline. Their “set it and forget it” style of investing works well for them but not necessarily their clients.
Pie charts look nice coming out of a color printer, and they probably would also look great in 3D. But they can’t help manage the investment risk in your personal portfolio, college savings plan or company 401K retirement plan account.

Looking for a better investment alternative?  »Click here«

Research Financial Strategies is a private wealth management firm that was established in 1991 to provide fee based investment advice.  We are a registered investment advisor  with the Securities Exchange Commission. Research Financial Strategies specializes in providing financial advice using a proprietary investment methodology that leverages technical analysis to identify and protect our clients against stock market risk.
Research Financial Strategies provides families, individuals and foundations with an alternative to institutionalized and impersonalized money management. A privately-owned, independent, and financially secure firm, Research Financial Strategies pursues without conflict the greatest potential in each client’s wealth.


Ready to Make a Change?

With an “education first” approach, Research Financial Strategies ensures that our clients understand how their money is being invested, and we guide the development of financial plans that help them achieve their goals for personal wealth and retirement security.

Special Message from Jack Reutemann – Breaking down the CARES Act

Subject: Special Message from Jack Reutemann


Breaking down the CARES Act

As you know, the coronavirus pandemic has created both a health crisis and an economic crisis.  As of this writing, there are over 160,000 known cases.1 By the time you read this, there will certainly be more – and that number does not reflect those who have been infected but not tested.  The economic cost, meanwhile, has resulted in millions of Americans losing their jobs.  Some economists at the Federal Reserve estimate the unemployment rate could rise as high as 32%!2  

To help address both crises, Congress recently passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act.  It’s a massive, $2 trillion stimulus package designed to help everything from hospitals, to individuals, to businesses large and small.  Time will tell if it will be enough to blunt the impact of this pandemic, but the fact Congress was able to pass something so significant, so quickly, is a rare feat worth celebrating.  

Charles Darwin once said, “It is the long history of humankind that those who learned to collaborate and improvise most effectively have prevailed.”  For many years now, that is not a quote you could usually apply to the United States Congress.  Political partisanship has meant that gridlock usually prevails over collaboration.  Thankfully, both sides of the aisle recently proved the institution still works when people put aside their differences and work together for the common good.  

This is major legislation, with benefits for almost every American.  Some of the bill’s provisions are especially important for retirees.  So, to help you understand what the CARES Act does, and how it will impact you, we have prepared a special breakdown.  As we are sending this to all our clients, some information may apply to you, and some may not.  Please read it carefully, and then let us know if you have any questions.      

As always, we hope you and your family are staying healthy and safe.  Please let us know if there is anything we can do for you!  



Jack Reutemann, Jr
Research Financial Strategies




Important Provisions of the CARES Act

The CARES Act is designed “to provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.”3  Think of it as a kind of massive care package.  Just as an actual care package is meant to get somebody through a tough time, that’s what the CARES Act is designed to do.  Because so many people have either lost their job, seen their hours cut back, or experienced drastic changes to their daily lives, many Americans must now contend with potential cashflow problems.  The CARES Act contains a number of provisions to help individuals and businesses handle those problems, at least for the short-term.  

What follows is a brief overview of the provisions that could affect you and your finances.  Let’s start with:

What’s the quickest way to ensure people get the money they need?  Pay them directly.  Perhaps the most newsworthy aspect of this bill is that many taxpayers will receive a one-time direct payment to help them cover expenses.  
Here’s a breakdown of how it will work.  
Individuals who made up to $75,000 in 2019 will receive $1,200.  
Heads of Household (single parents, for example) who made up to $112,500 in 2019 will receive $1,200. Married couples filing a joint tax return who made up to $150,000 in 2019 will receive $2,400.
On top of this, each taxpayer will receive up to $500 for each child they have under the age of 17.  So, for example, a married couple with two children would receive $3,400.

Note that payments decrease for individuals and married couples with income above their respective thresholds.  Specifically, payments shrink by $5 for every $100 earned above the $75,000/$150,000 limits.  The payments disappear entirely for individuals who made $99,000 or more, and for married couples who made $198,000 or more. 

So, when will this money actually arrive?  It’s unclear.  The IRS could start issuing payments sometime in April or May, but an official schedule has not been released.  (The CARES Act itself only mandates that payments be made “as rapidly as possible.”4)  It’s likely that those who filed their 2019 tax returns with direct-deposit information will receive payments first.   

If you haven’t filed your tax return for 2019 yet, please let us know.  We would be happy to work with your tax preparer to expedite the process.  

Speaking of tax filing…
This isn’t technically part of the CARES Act, but I’m going to cover it anyway because it’s important.  Due to the pandemic, IRS has extended this year’s tax-filing and payment deadlines.  Now, taxpayers have until July 15 – up from the standard April 15 – to file their 2019 tax returns.  The deadline to make IRA and Roth IRA contributions is now July 15 as well.  

Note that this new deadline applies to everyone, not just those who are sick, under quarantine, or materially affected by the coronavirus in some way.  And if you’ve already filed your return, you should still receive your refund around the same time you would during a typical tax season.

Let’s get back to the CARES Act. 
It was said a moment ago that direct payments were the most newsworthy aspect of the bill.  But for the overall economy, the bill’s unemployment provisions are probably the most important.  Unemployment claims rose by 3.28 million between March 15-21.  That’s the highest weekly surge in history.  The previous record?  695,000.6  

To help combat this, the CARES Act provides approximately $260 billion in unemployment assistance for those who lose their jobs.  This includes freelancers, independent contractors, and other self-employed workers.  That’s a major change, because under normal circumstances, they can’t apply for unemployment benefits.  

Generally, workers who lose their jobs will receive $600 per week for four months, in addition to what their state unemployment program pays.  The CARES Act also adds an additional thirteen months of federal unemployment insurance on top of a person’s state benefits.

If any family members lose their job, please let us know.  We would be happy to answer their questions or provide any assistance we can.  

Even those who don’t lose their jobs will still want to keep a close eye on our nation’s unemployment rate.  More people out of work means less people spending money on the economy – which can have a profound influence on the markets.  That’s why one of the most critical things the government can do right now is help businesses avoid laying people off.  

Roughly $350 billion of the legislation’s price tag is geared towards just that.  Companies with up to 500 employees can receive loans of up to $10 million.  Any portion of the loan used to maintain payroll or retain workers – at least through the end of June – will be forgiven.  In addition, businesses can apply for grants of up to $10,000 to cover their operating costs.  

For larger businesses, the CARES Act sets aside around $500 billion in loans and grants, especially for hard-hit industries like airlines.  And for companies that are forced to close or furlough workers, the legislation “covers to 50% of payroll on the first $10,000 of compensation, including health benefits, for each employee.”7

These are all necessary steps to keep our economy going.  Will they be enough?  That’s an open question.  The answer largely depends on how long the pandemic lasts – and how well Americans commit to social distancing to stop the virus’ spread.  Watch this space.             

We said at the beginning of this message that some of the CARES Act’s provisions are especially important for retirees.  Let’s cover those now.   First up, Required Minimum Distributions, or RMDs.  In a normal year, anyone 72 years or older would need to withdraw a minimum amount from their IRA or 401(k).  Not this year. 

Under the CARES Act, all RMDs are suspended in 2020.  That means you can leave that money in your retirement account for the year if you don’t need it now.  Note that this applies both to retirement account owners and beneficiaries.  

People who have already taken their distribution for 2020 can potentially return the money to their account if they want.  This could be a slightly complicated process, so we won’t cover it here.  However, if you want further information about it, let us know.  

The CARES Act also waives the 10% early withdrawal penalty for retirement accounts.  Withdrawals will still be taxed, but spread over a three-year period.  Under most circumstances, our advice is to leave your retirement savings where they are, but it’s nice to know that early withdrawals are an option if you need them.  

Finally, the CARES Act increases the 401(k) loan-limit from $50,000 to $100,000.   If you have questions about any of these provisions, or how they apply to you, let’s chat!  

Finally, it should come as a great comfort to know that the brave doctors, nurses, and scientists on the front lines are getting assistance, too.  Specifically, the CARES Act provides $100 billion for hospitals, $1.32 billion for community health centers, $11 billion for coronavirus treatments and vaccines, $16 billion for additional medical supplies, like ventilators and masks, and $20 billion for veterans’ health care.  You should know, too, that the Act includes a telehealth program so that if you can’t leave home, you can still have a virtual appointment with your doctor.  

Our hearts goes out to all those giving their time, talents – and sometimes, lives – to keep the rest of us safe.  They are true heroes, and we are so grateful for them.  Let’s all do our part to make their jobs just a little easier by maintaining our distance, keeping clean, and staying home as much as possible.      

As you can see, the CARES Act is a loaded piece of legislation.  Time will tell whether more measures are needed, but this is definitely a good start.  

Of course, our team will continue poring over these changes.  If there is anything else we feel you need to know, we’ll reach out to you.  In the meantime, if you have any questions about:
• Getting a direct payment
• Filing your taxes
• Protecting your paycheck and/or income
• Your retirement accounts

Please don’t hesitate to let us know.  Whether we’re in the office or working from our own homes, our team is always here for you.  

Stay healthy, and stay safe!


1 “Cases in U.S.”, Centers for Disease Control and Prevention, March 31, 2020.
2 “Coronavirus job losses could total 47 million, unemployment rate may hit 32%, Fed estimates,” CNBC, March 30, 2020.
3 “Text of S. 3548,” United States Senate,
4 “Text of the Coronavirus Aid, Relief, and Economic Security Act,” United States Congress.
5 “New Details From the IRS on July 15 Tax Deadline, Audit Relief,” The Wall Street Journal, March 30, 2020.
6 “Unemployment claims soared to 3.3 million last week, most in history,” CNN Business, March 26, 2020.
7 “What’s Inside the Senate’s $2 Trillion Coronavirus Aid Package,” NPR, March 26, 2020.