Here It Comes – Major Tax Changes

Here It Comes – Major Tax Changes

The new tax law hasn’t been formally ratified by the U.S. House and Senate, but all indications are that the Tax Cuts and Jobs Act of 2017 will be sent to the President’s desk in the next few days.  As you probably know, the House and Senate versions were somewhat different.  What does the new bill look like?

Market Correction?

Market Correction?

SRI investors, like virtually all investors, know that over time markets go up and markets go down. When they go up for an extended period of time we call it a bull market – vice versa, it’s a bear market. Well, we’ve had a bull market now for a very extended period of time, more than 7 ½ years. Eventually, a bear market will follow. We know that. We just don’t know when and how severe it could be.

I happen to believe in some unsubstantiated investment “street” wisdom – that more money has been lost trying to avoid market “corrections” and bear markets than has been lost in the events themselves. If that wisdom is true, it is for a simple reason. Investors who bail out of their stock holdings while predicting (i.e. guessing, following a hunch or a chart) a market downturn are very often wrong about the timing. After they pull out, the market continues to go up for a substantial period of time – they miss out on the upside in their anticipation of the downside

The New Tax Legislation

The New Tax Legislation

Chances are, you’ve heard that tax “reform” is right around the corner—that is, if you can call it “reform” when hundreds or perhaps thousands of new pages are about to be added to the tax code.  First, the White House released its tax legislation wish list.  Now the Republicans in the House of Representatives have released a proposal called the “Tax Cuts and Jobs Act,” which fleshes out some of the details.

Big Oil Making Bigger Moves to Alternatives

Big Oil Making Bigger Moves to Alternatives

SRI investors can easily have doubts about whether their investment actions are really making a difference. It is, after all, very difficult for each of us to see or discern the impact our actions have in the world. This can be especially true about climate change, a global problem that is already upon us, and the ongoing dangers from which could be catastrophic. When we divest from fossil fuel companies and/or engage them in shareholder advocacy initiatives, are we moving the needle at all?

Socially Responsible Lifestyle? It Could Be Fun

Socially Responsible Lifestyle? It Could Be Fun

SRI investors care about people and the world. I know. I work with a whole group of them. They’re my clients. I’ve experienced many instances in my years of professional practice that revealed that my SRI clients care about me as a person, not just as their financial advisor. My favorites are the times one client or another has called me during a down market to ask how I’m holding up!

I care about my clients as people also (that is, not just as clients). Thinking about them, I was reflecting recently on what it might mean to live a socially responsible lifestyle. Your first thought might be, “Oh no, this doesn’t sound like fun – he’s going to get really serious here.” Well, no. What I want to suggest is that having fun, and having it now, is the way to go.

SRI on the Fourth of July

SRI on the Fourth of July

Whether by luck or grace, depending on your viewpoint, I was a healthy baby born on the Fourth of July – so to me it’s not only a special day for the country. On most July 4th weekends in my life I have been proud to be a citizen of the USA. 

Not so much this year. Since that fateful election back in November, I’ve felt mostly embarrassed for my country or, to be clear, for my country’s leadership. As David Remnick remarks in a current article for The New Yorker magazine, “Every day, Trump wakes up and erodes the dignity of the Presidency a little more. He tells a lie. He tells another……He trolls the press, bellowing ‘enemy of the people’ and ‘fake news.’” And on and on. It remains hard for me to believe that such a person has become, and is, President of the United States.

Reading Your Quarterly Performance Reports

Reading Your Quarterly Performance Reports

If you work with a fee-only financial advisor, you receive portfolio performance reports every three months—a form of transparency that financial professionals introduced at a time when the typical brokerage statement was impossible to decipher.  Taken by itself, however, the information you glean from any one quarterly report is virtually useless unless viewed in a larger context.  It’s very difficult to know if you’re staying abreast of the market, and for most of us, that’s not really the point anyway.

Happy Countries

Happy Countries

The World Happiness Report is out, and a group of independent experts have now compiled surveys of people in 156 countries, asking them to evaluate their lives on a scale of 1-10.  They then looked at some of the factors that seem to contribute to happiness, and identified five: real GDP per capita (a measure of average wealth); healthy life expectancy at birth; freedom to make life choices; generosity; and whether they perceived their society to have elements of corruption.

SRI is Booming!

Since November 8, the world has seemed darker for many SRI investors and others who see themselves as socially liberal or progressive. In my last two blogs, however, I’ve suggested that actions by the U.S. government will likely not dictate the future of human and planetary wellness and sustainability. Simply put, our future is still in our own hands, in how we as people and communities conduct our lives, our relationships, and our businesses – in how we generate our incomes and how we spend and invest those incomes.

On that front, there is some very good news, released very recently by US SIF (The Forum for Sustainable and Responsible Investment). SRI is booming!! In 2016, USSIF’s SRI Trends Report* reports that sustainable, responsible, impact (SRI) investments in the U.S. now total $8.72 trillion. That’s a 33% increase from 2014!

Most of this investment volume is implemented by professional money managers on behalf of financial advisors and institutional and retail SRI investor clients like you. These managers consider environmental, social, and corporate governance (ESG) criteria alongside financial criteria in constructing and managing their portfolios, and the top two issues they are considering today are conflict risk (i.e. terrorism and war-making) and climate change.

An integral and important part of the SRI trend is the active participation by SRI professionals and investors in shareowner advocacy. Shareowner resolutions filed on ESG issues from 2014 to 2016 represented over $2.5 trillion in assets at the beginning of 2016 – and those resolutions are garnering greater support at corporate shareowner meetings around the country.

Taking an increasingly important part as well is the continued growth and spread of different impact and community investment opportunities and products. Community impact investments** allow more and more investors to direct their capital toward local farming and urban community development, fair trade businesses, sustainable forestry, micro-finance, alternative energy projects, and so on.

Perhaps most gratifying – the explosive SRI growth is being driven largely by client demand. SRI continues to bubble up from the grassroots, from people like you and me and from religious and endowment institutions, not from government action or mandate. 

*See Report of US Sustainable, Responsible and Impact Investing Trends 2016, published by US SIF.
**Mention of specific types of investments does not constitute a recommendation to invest.

The Great Divide

Unthinkable. That is the word that kept coming to mind last night as the election results poured in. Is this really happening? This morning, however, a bit more clarity has me asking myself why I am so surprised. Has Trump not been doing the unthinkable for months now, and come out on top with every new contest?

Clearly, so many in our country are seeking major changes, changes they are hoping will make their lives better. I shuddered earlier in the campaign when many Sanders supporters were saying publicly they would likely vote for Trump rather than Clinton. In my mind, many Trump voters have been flailing about blindly, and did so again yesterday. But are we not engaged in sustainable, responsible impact investing (SRI) to change our country and our world for the better? Are we not also seeking better lives for ourselves and our children?

As investors, and especially as SRI investors, we want to avoid acting blindly with our portfolios. Now, when the markets will surely be choppy for some time – now is the time to remain calm and to stay with your long-term investment plan. Times of uncertainty are rarely good times to sell. The value of your portfolio does not depend on who occupies the White House, but rather on economic fundamentals that today are global in nature and ultimately transcend U.S. politics. Indeed, the type of world we live in, and in which we will live in the future, is and will be shaped less by how we vote than by how we spend and invest our money.

The Great Divide. Politically, that might well and accurately describe our country. But on a more fundamental level, all of us are seeking better lives, lives with more joy and freedom. It does us little good to bemoan an election that has not gone our way. Rather, last night’s results add clarity and purpose to why we are SRI investors, and why we will do well to stay the course. 

Horsesmouth Article

The article below is a recently published transcript of an interview I (Gary) did with Horsesmouth, a member organization dedicated to supporting and educating professional financial advisors. In it, I underline the importance of honest and proactive communication between advisors and clients, especially when markets are volatile.

I’m inviting you to read all or a part of the article, and if you have any suggestions about how we can improve our communication please let me know with a phone call (888-596-0353) or quick email ([email protected]). We very much appreciate your trust and are always striving to provide the best and most valuable client service we possibly can.

Thank you in advance!

Amy's New Email Series for Couples

So many of today’s busy couples are looking for ways to cultivate a deeper connection and find a better sense of balance – especially in the areas of time, energy and money.

Beginning June 1, Amy will be teaming up with relationship therapist Rebecca Wong and yoga and meditation instructor Lana Heintjes to present the 21-Day Relationship Reboot Challenge – a free email series offering daily tips on how to recharge your relationship and re-envision the way you both relate to money.

Whether you’re in a relationship now or hoping to be in one in the future, you won’t want to miss this.

Why Europe Matters to Your Portfolio

Ever since the possibility of default on Greek sovereign debt has become headline news, a lot of people have found themselves wondering, "How is it possible for the financial problems of a country so small and so far away to create such turmoil in the world's markets?" What's happening in Europe is probably affecting your portfolio right now, regardless of the quality of your holdings or how well diversified you are.

Just what is all the shouting about? It's no secret that the so-called PIIGS nations (Portugal, Italy, Ireland, Greece, and Spain) are having difficulty coping with the debt that years of deficit spending have created. A robust global economy helped to mask the problem, but in recent years the burden of sovereign debt--bonds issued by sovereign governments--has become increasingly unsustainable. With debt at roughly 140% of its gross domestic product,* Greece is particularly troubled. Imposing austerity measures required by its European colleagues has added to the country's recessionary woes. That in turn has made it even more difficult to achieve mandated deficit reduction targets in order to qualify for additional installments of financial aid from the European Financial Stability Facility (EFSF) set up last year by 17 eurozone countries.

Bank exposure

One of the chief concerns about the possibility of default on sovereign debt has to do with the financial stability of banks that hold it. Some of the largest French banks have already suffered downgrades of their credit ratings because of their extensive holdings of debt from troubled European countries, particularly Greece. If a Greek default made banks reluctant to lend to one another, that could affect credit markets worldwide.

American banks hold very little Greek debt compared to European banks; however, they could face a different challenge. Understanding why requires some basic awareness of a type of derivative known as a credit default swap. Investors with large bond holdings from a particular borrower often try to protect themselves against the possibility that the borrower will default by buying a credit default swap on that debt as a type of insurance. The company that issues the credit default swap agrees to cover the bondholder's losses in case of default. The more risky the issuer--for example, Greece--the more likely bondholders are to try to protect themselves with swaps. However, in some cases, a company may have issued so many default swaps on a particular issuer that it could be overwhelmed by the claims resulting from the issuer's default.

Such derivatives can create a ripple effect in financial markets. If the company that issued the swaps can't make good on them, the institutions that relied on that protection also can find themselves in trouble, which multiplies the impact of a major default. U.S. financial institutions are major issuers of credit default swaps, and the potential impact of a Greek default on them is unclear. However, since the 2008 financial crisis, U.S. banks have been forced to hold greater capital reserves to deal with contingencies, and Treasury Secretary Timothy Geithner recently said that banks here have reduced their exposure to the debt of troubled countries.

Potential for tighter credit leading to recession

Lending worldwide hasn't fully recovered from the last financial crisis, and has helped keep global economic recovery sluggish. Fiscal austerity measures taken to try to reduce deficits have also taken their toll, hampering economic growth and making it even more difficult for countries such as Greece to balance their budgets. If banks' lending ability were impaired further by a financial crisis brought on by a default on sovereign debt, tighter credit could increase the odds of renewed recession.

Also, Europe represents a major market for many American companies, and a recession there wouldn't help an already slowing global economy.

Greece could be the tip of the iceberg

Even though Greece is the immediate concern, larger economies in Europe actually could represent a bigger threat. Italy and Spain both face sovereign debt burdens and deficit problems. Italy's economy is more than five times that of Greece; Spain's is more than four times bigger.* If either country were to decide it needed to restructure its debts as Greece is attempting to do (which ratings agencies could see as a form of default), that would have a much bigger impact than Greece. If a Greek default would have a ripple effect, a default by either Spain or Italy could cause waves.

To compound the problem, as investors have become increasingly concerned about the possibility of debt contagion in Europe, borrowing costs for both Italy and Spain have risen. At recent auctions, nervous investors have been demanding higher interest rates to compensate them for the higher perceived risk of buying that sovereign debt. As any credit card holder knows, having to pay a higher interest rate makes paying off debt and balancing the budget more difficult. A Greek default could make investors even more nervous about buying other troubled countries' debt, and being frozen out of credit markets would likely aggravate fiscal problems abroad.

All politics is local

There have been signs in recent months that voters in stronger economies such as Germany are beginning to question why they should continue to support countries that have not been as disciplined about balancing their budgets. Also, investors worry that the financial support available from the EFSF may not be sufficient or available quickly enough to avert problems. Though there has been no shortage of suggestions for how to deal with the situation--issuance of euro bonds backed by all eurozone members, leveraging the EFSF's existing assets, greater fiscal integration among countries, Greece returning to its own currency--questions about the ability and willingness of other countries to support the eurozone's weaker members have caused investor anxiety worldwide.

Financial markets hate uncertainty, and the situation has contributed to the recent volatility across a variety of asset classes that don't usually move in tandem. However, Europe has the benefit of having watched the United States deal with its own difficulties during the 2008 crisis. Also, European leaders have generally reaffirmed their determination to defend the euro at all costs.

Uncertainty about Europe could persist for months, but it's important to keep it in perspective. While you should monitor the situation, don't let every twist and turn derail a carefully constructed investment game plan.

*Source: CIA World Factbook 2011 Forefield Inc. does not provide legal, tax, or investment advice. All content provided by Forefield is protected by copyright. Forefield is not responsible for any modifications made to its materials, or for the accuracy of information provided by other sources.

To Invest?

We all want to know where the markets are heading, and whether another recession is imminent. We watch the headlines about government debt problems in Europe and in the U.S., and we watch our politicians, our so-called "leaders," fight, fumble, and fail. With the Great Recession of 2008 still a very painful memory for investors (is it over yet?), our anxious thoughts spiral downward...But then we have our morning coffee (fair trade, organic!), exercise, take a nice walk, meditate, or read a hopeful article, and we begin to think again. We, you and I, are the privileged of the world. We have homes to live in, food to eat (fair trade, organic!), and the freedom to conjure up dreams of retirement, new careers, and home renovations.

We even have assets and the wherewithal to invest! To invest - a fascinating freedom. In finance, of course, to invest means to use money to purchase something of value with the hope of a positive return - that is, to make more money. More broadly, though, to invest is to give, use, or devote one’s energies to...a goal, a cause, a lifestyle, loved ones, the good life (or, a life well-lived). Conversely, not to invest could be construed as - not to live.

To invest also means to endow an attribute to others, as in, "The media is investing the public with fear and anxiety about the world." Is that true for you? In these days when the market is bobbing up and down in a sea of anxiety, with what are you invested? With fear? With hope? With determination? Persistence? Joy? How you answer that question reveals how you are likely viewing your financial investments in these admittedly uncertain times.

Know this. Your portfolio is professionally and competently invested and managed. Your portfolio is highly diversified, and we take investment risk very seriously. Above all, your portfolio is invested in a just and sustainable global economy.

Risk is real, though. If you are like most people psychologically, you fear losing money more than you take joy in making it. As always, if you are losing or beginning to lose sleep, call or email me. We have choices and alternatives to help minimize risk further. But whatever you are invested in, financially and in life, I urge you:

Stay invested - with hope for a better future.

Are You Angry?

I've been married for 32 years and I know my wife pretty well. I know that when we are together and she is being very quiet, something is amiss. Sooner or later, I ask the first question, "Is something wrong?" A non-committal answer, no or yes, usually means, "Yes, something is wrong." Continued quiet often leads to the next question, "Are you angry?" Sometimes, the answer is yes and it is because I have done something she didn't want me to, or didn't do something she did want me to (I'm being polite here). Sometimes, the question, "Are you angry?" leads to an unexpected explosion!So it is with some anxiety that I ask this question of my clients and prospective clients. Are you angry? If you are, there have certainly been enough negative economic, financial, and natural events in the past few years (even decade) to aid in your feeling that way. I might also ask, "Are you frustrated?" or "Are you afraid?"

Investing has certainly been a challenge, often a frustrating challenge, in recent years. A recent survey points to the reasons investors are fearful today. Three quarters of Americans are worried about their money, whether they have enough and whether it will last. As a result, they are also worried about their future. The recent recession has left many feeling they have little or no control over their financial lives. On a broader front, a majority of Americans are also worried about the future of the United States, its standing and actions in the world, and whether our country will be a better or worse place to live in for our children and grandchildren.

As your financial advisor, I am here to support you in this seemingly chaotic world. I have your back. More specifically: I am here and available to meet with you. If you are afraid or angry about the market (or about your portfolio), or simply have financial questions that need answers, let's get together. I promise to listen well. Please call or email me.

We are actively managing your portfolio, and we have choices and options. The economic and financial environment continues to be very challenging, and since you have delegated the day-to-day management of your assets to First Affirmative and me, at times it might not seem that much is happening. It might appear we are being too passive. I can assure you that is not the case. I have ongoing, weekly conversations with the investment team at First Affirmative about the makeup of our portfolios, and about our tactics and strategies in the face of changing conditions. There is ongoing evaluation and re-evaluation of the performance of our portfolio managers, and of your accounts. We know our managers are working hard for you.

Again, though, our ongoing communication is very important. If something has changed in your life, or if you have simply become anxious about your portfolio, we should talk. There are always different options and choices we can make together. You, and we, have more control than you might think.

You are invested in a sustainable and responsible (SRI) portfolio. Engaging in SRI allows you to do so much more than simply gamble or speculate on a riskier world. You are boldly placing your money where your values and dreams are. You are truly investing - investing in your own future, yes, but more - investing in a world of greater opportunity for those who have little, and in a world with ample fresh air, clean water, and healthy food for your children and grandchildren to enjoy.

So if you are angry, harness it. Get in touch with me if you have questions or concerns. If you have loved ones or friends who are angry about their finances and could use someone to watch their back, refer them to me. If you are a prospective client interested in SRI and looking for this type of service, call or email me. It is a complicated and challenging environment. Let's work together to improve it.

First Affirmative Shareholder Resolution Update

A few months ago we asked for advice or input on priorities for shareholder advocacy. The five issues that rose to the top of the list included climate change, human rights, executive compensation, environmental health and access to healthcare and drugs. We have been quite busy researching resolution opportunities within our Folio Institutional client base and working with our partners to co-file resolutions on issues that meet our priority criteria and the SEC filing criteria. We wanted to provide you with an interim report on the shareholder season. Many of the filing deadlines were last fall/winter. We are still considering a number of resolutions for co-filing in the next few months, but the list below represents the majority of resolutions we will be co-filing in the 2009/2010 season.Of note is that this year companies are challenging quite a number of resolutions, and it appears they are testing the resolve and limits of some of the SEC rulings that have come out that give activists more leverage in filing resolutions on certain issues, including climate change. This is making it more interesting, time-consuming and costly to file resolutions! Many of the challenges are still outstanding, and we will keep you posted as the SEC makes decisions about whether the resolutions will stand. With one exception, all of the resolutions listed have already been filed. Lead filers are listed for each company. If there has been any action such as a challenge or withdrawal, we note this. Over time, some of these resolutions may be withdrawn while others go to vote. We will keep you informed as the season continues and annual meetings begin to take place. If you are interested in seeing the actual resolution text or want more information about a specific action, feel free to contact Holly Testa ([email protected]) or Christie Renner ([email protected])

Environment/Climate change

Aqua America, sustainability report - Calvert Resolution requests company produce a sustainability report that meets Global Reporting Initiative guidelines. Water utilities such as Aqua America face special challenges and risks due to aging infrastructure and water scarcity.

Chesapeake Energy, report on hydraulic fracturing operations - Green Century Shareholders request that the Board of Directors prepare a report summarizing the environmental impact of fracturing operations, potential policies for the company to adopt, above and beyond regulatory requirements, to reduce or eliminate hazards to air, water, and soil quality from fracturing, and other information regarding the scale, likelihood and/or impacts of potential material risks to the company’s finances or operations.

Chesapeake Energy has challenged this resolution on many different fronts, and a decision is pending at the SEC. Included as part of this challenge is questioning the authority of First Affirmative to file this resolution on behalf of its clients. Chesapeake Energy is obviously spending a lot of attorney dollars to keep this resolution from appearing on their proxy.

Conoco Phillips, disclosure on oil sands operations - CalSTRS Resolution requests that a report be prepared to disclose environmental damage that would result from expanding oil sands operations in Alberta, Canada's boreal forest.

Google, sustainability reporting - Trillium Resolution requests that Google produce a sustainability report. Google is one of several companies being targeted by a sustainability report campaign this year.

JPMorgan Chase, review carbon principles implementation - Boston Common Shareholders request that the Board review JPMorgan’s implementation of the Carbon Principles and, where necessary, amend JPMorgan’s policies and practices to ensure alignment with the Carbon Principles’ benchmarks for risk measurement.

This resolution has been challenged by JPMorgan Chase under the ordinary business exclusion, and a decision is pending at the SEC. In the meantime, we have participated in discussions on how to approach negotiations with JPMorgan Chase, and Boston Common submitted a letter outlining grounds for withdrawal of the resolution. It appears JPMorgan Chase may be willing to compromise to the point allowing us to withdraw.

Kroger, supply-chain risks - Calvert Resolution requests that Kroger asses and manage the impacts of climate change on the corporation, with specific regard to its supply chain, and plans to disclose such information through public reporting mechanisms.

Pepsi, adopt effective recycling strategy - Walden Resolution requests that Pepsi review the efficacy of its recycling strategy. They appear to be behind their competitors, and they are on record as opposing any container deposit laws.

RR Donnelly, adopt sustainable paper purchasing policy - Domini Shareholders request the Board to develop a sustainable paper purchasing policy, including plans for implementing the policy and reporting progress. Donnelly is a major printing services supplier, and is therefore a major paper purchaser.

Smuckers, supply-chain risks - Calvert This is another supply-chain resolution, substantially the same as the one filed at Kroger.

Executive Compensation-"say on pay" campaign

This is a continuation of last year's shareholder campaign to prod companies into adopting advisory votes of shareholders to ratify and approve a company’s the executive compensation policies and practices on an annual basis. In 2009 shareholders filed almost 100 “Say on Pay” resolutions. Votes on these resolutions averaged more than 46% in favor, and close to 25 companies had votes over 50%, demonstrating strong shareholder support for this reform. Reform in this area is also part of the financial reform legislation currently working its way through Congress.

Colgate-Palmolive, say on pay - Needmor We have recently received word that due to successful negotiations, this resolution will be withdrawn. There should be a press release soon.

Johnson & Johnson, say on pay - Walden Substantially the same resolution as was filed at Colgate-Palmolive.

Human Rights

Home Depot, diversity report - Trillium Resolution requests that Home Depot prepare a diversity report. This will be the fourth year for this resolution, with votes in the mid-20s. Home Depot has paid out more than $100 million to settle discrimination lawsuits in the last 13 years.

Several of the resolutions listed in other categories also fall under the human rights category, including Aqua America, Google, and Conoco Philips.