Jason Howell, CFP®, CPWA®, CSRIC® (left) and Doug Tees, MBA, CFP®, CAP® (right)
Letter to Stakeholders, April 2023
Monday, April 10th, 3:22 pm EST. We are nearly four full months into 2023 and not much of our financial outlook has changed. There was an expected slow down in economic activity (spending) but that still hasn’t materialized (especially in travel). If spending persists, then corporate earnings will be high despite predictions. But if corporate earnings remain high, then the Federal Reserve Bank may see an opportunity to raise the bank lending rate…again. This “push/pull” with the stock market and inflation expectations is likely to persist well into the Summer.
People often ask me if our clients are calling us “all of the time” because of the market volatility (ups and downs). I surprise them by saying you are not. You know that we are helping to execute your plan rather than running towards “a number.”
Not everyone you know handles market volatility the way you do. If you talk with someone this month who is concerned about “the market” or “the economy” connect them with us. We’ll gladly help to ease their concerns.
A Structured Note Example
Last month we went into more detail about the hybrid security called the “structured note.” These “hybrids” serve as potential alternatives to traditional “stock and bond” investing. This month I’ll share an example of a structured note that we found attractive but did not invest in.
On April 6th, we received a notification from Halo Investments about a structured note that was available for “add-on” investors. This meant that the note was designed by the bank (UBS) and another financial advisor (unknown) and it was being made available to others (to add on). The terms included a $1,000 minimum, 60 month note, 11% annualized yield with 30% soft protection (buffer). It also included a 12 month “non-call period” aka a period when the bank (UBS) would have to pay you the interest (11%) instead of just returning your investment. After 12 months, they could “call” it back.
With a $50K investment, you would have received 11% of income ($5,500) the first year by contract and $5,500 per year for the next four years (unless they “called” the note.
What’s the downside? A worst-case scenario is UBS goes bankrupt, does not get bailed out by the federal government and you lose your entire investment (less the interest you earned along the way). A less dramatic but possible downside is you keep the note for the full 5 years, and either the S&P 500, the NASDAQ or the Russell 2000 index is down more than 30% on your 5-year anniversary date. If that happens your principal would not be protected and will experience the same decline of the index (market).
To evaluate this structured note example, an investor would have to ask themselves – or their advisor! – three (3) questions:
- How likely is UBS to fail and if so, not get bailed out by the federal government?
- What’s the likelihood I can get an 11% return somewhere else with less risk?
- Is it likely that the S&P 500/NASDAQ/Russell will be down 30% in 5 years?
The answer to these three questions is “Not very likely.” This is why Doug and I are interested in these kind of hybrid investments. It’s an interesting way to receive “high yield” plus a high probability of getting your money (principal investment) back.
Stakeholder Spotlight: Doug Tees, MBA, CFP®, CAP®
It gives me great pleasure to announce that our COO and your Wealth Advisor, Doug Tees, has earned the coveted Chartered Advisor in Philanthropy (CAP) designation. Congratulations Doug! From a wealth management standpoint, Doug’s newly tested (proven?) expertise in the application of philanthropic goals will provide additional help with tax and legacy planning, wealth management and values alignment. As a firm, we model Doug’s charitable focus by donating 1% of our firm's revenue to fight hunger locally and reduce methane gas. Most recently we partnered with NOVA Food Rescue.
Please update us on your most important causes. And enjoy the weather this April.
Jason J. Howell, CFP®, CPWA®, CSRIC®
President
Jason Howell Company is an independent, family wealth management firm run by two owners who believe you should feel good about money.
Jason J. Howell, CFP®, CPWA®, CSRIC® and Douglas W. Tees, MBA, CFP® are each married to patient wives and are dedicated to their kids. Jason and Doug have built a firm with a great reputation. The firm is based in Northern Virginia but serves clients (virtually) all throughout the United States.
Our typical "first generation" client households include dual income parents who work, save and have just the right amount of fun. They trend a little older - Gen-Xers (born 1965 - 1980) and Boomers (born 1946 - 1964) - but we're starting to see more Millennials (born 1981 to 1996) who don't want to wait until it's too late. They earn impressive incomes and have accumulated (or are accumulating) a good bit of savings. As experts themselves, they expect expertise from people they hire.
First generation clients feel more confident about their decisions because:
- Implementing a professional investment strategy relieves the stress of managing $1 Million+
- Discussing money with professionals improves family communication about family values and lifestyle
- Identifying time and money for causes they believe in make them feel like whole persons
- Working directly with independent business owners rather than "big box" bank employees just feels right
- Redefining the meaning of affluence in the 2020s (and beyond) is important to their legacy