I’ve recently become a contributor to Investopedia in the “Advisor Insights” portion of the website. My first contribution, a response to an investor’s question, can be found here and the contents can be found below.

Investor’s Question:

I was recently told by more than one financial advisor that I should rollover my employee retirement plan (now that I’ve left that company) into an Individual IRA. When I called that company to do just that, I was told by their advisor not to rollover. He explained that I began investing in 2007/08 when the market was low. If I were to rollover to an Individual IRA today, I would be buying in when market prices are high, thus buying fewer stocks/bonds (whatever pieces comprise the plan). He also said, since your plan has averaged a 5.1% gain this year, why would I want to lose that? Makes sense. Can someone speak to this logic for NOT rolling over?

My Response:

Yes, you should roll over your employer retirement plan into an IRA. There are a few exceptions depending on circumstances, which I am not going to go into at this time.

The plan representative you spoke to likely told you to not roll your assets into an IRA because it is in the best interest of their firm. Typically employer retirement plans such as 401k plans are administered by financial institutions that charge a percentage fee based on the asset size of the overall plan. Therefore it is in the best interest of the representative and his/her firm for assets to remain in the plan. Therefore, keeping your assets with them would be the representative’s best interests and not necessarily yours.

The representative’s point about the market being low in 2007/08 has no relevance in determining if your retirement assets are better held within a former employer’s retirement plan or held in and IRA and should not be considered.

If you roll your funds to an IRA, you are not losing the 5.1% gains that your assets have already experienced.

When you invest your money in an IRA, the account is in your possession. IRA’s are not held to the same rules and restrictions that 401k’s are. This means that you have fewer restrictions on the access to, and management of your assets. An IRA typically allows for a much broader selection of investment choices, and freedom to choose what financial institution to custody the assets with. With an IRA you have the option to choose a financial institution that has very low maintenance fees.

– Wyatt Swartz

3/1/2017

After each year I like to look back and review where I was right and where I was wrong. Below is a short list of some of the calls.

Where I was Right: The bull market continued. I am constantly assessing the markets macro movements, looking at the major market drivers to determine where we are in the market cycle. Understanding where we are in the market cycle helps us to position the portfolio accordingly. It was my expectation that in 2016 optimism from both political side in the US would be a positive force for markets, that low, but steady economic expansion would continue, and that investor sentiment would remain at best optimistic. These were all positive drivers, that pushed markets up.

Where I was Wrong: I fully expected Hilary Clinton to win the US presidential election. I wrote here that I thought the most probable outcome was a Clinton win. Sometimes the improbable happens. A good example of why we as investors must always be asking the question “what if we are wrong?”

Where I was Right: Short-term overreactions continued to push markets and created tactical opportunities, but were ultimately unfounded. The beginning of the year saw markets hit correction territory on fears of a slowdown in China and low oil prices. I said here that I believed we were in a correction, not a bear market, and that it was a buying opportunity.

Where I was Wrong: Emerging markets outperformed the markets as a whole, and I positioned managed portfolios with an underweight to emerging markets. As the bull market continues I continue to believe that an underweight to emerging markets is appropriate.

Where I was Right: I was correct in expecting short-duration and corporate bonds to outperform the overall bond market. This was a source of outperformance in fixed income portfolios.

Where I was Wrong: I expected a longer-term correction following a Trump victory. I was expecting at least a week for the v-bottom to form. The downside volatility came, but was literally erased in over the course of one morning and I was unable to take advantage of the tactical opportunities.

Where I was Right: Brexit and the Trump victory did produce very short-term downside volatility, but it quickly rebounded. In both cases I said that it would not be a catalyst for the next bear markets, but rather a correction blip and buying opportunity. Both proved to be true, even though the Trump “mini-correction” was so short lived that I wasn’t able to take advantage with a tactical trade.  

Where I was Right: I expected financials to have a good year in a rising rate environment. We did not get nearly as many Fed hikes as initially expected, but the expectation of more hikes in 2017 and decreased Federal regulation helped make a an overweight to financials a good move in 2016.

                                                                                                                                                 – Wyatt Swartz

2/13/2017

2016 marked the first full calendar year for W. Swartz & Co., and by reaching that milestone I am able to review portfolios and give a report card for how portfolios did relative to their benchmarks.

Overall I can say that I am very pleased with how client portfolios performed.

Benchmark for stocks portfolios: Vanguard Total World Stock ETF (Ticker: VT): +8.51%

• About the Benchmark: VT is an ideal benchmark for the world stock market. It is a global stock index fund that covers approximately 98% of the world’s investable market capitalization. About 50% of the fund’s portfolio is invested in U.S. stocks, 40% in international developed stocks, and the remaining 10% in emerging-market stocks.

Benchmark for fixed income portfolios: SPDR Bloomberg Barclays Aggregate Bond ETF (Ticker: BNDS): +2.37%

• About the Benchmark: BNDS provides a measure of the performance of the U.S. dollar denominated investment grade bond market, which includes investment grade (must be Baa3/BBB- or higher using the middle rating of Moody’s Investor Service, Inc., Standard & Poor’s, and Fitch Inc.) government bonds, investment grade corporate bonds, mortgage pass through securities, commercial mortgage backed securities and asset backed securities that are publicly for sale in the United States.

BRAVO: +10.23% (after fees)

• About this Portfolio: This portfolio is 100% stocks and used in accounts I manage where the client has below $100,000 allocated to stocks. It will mirror the WSTR portfolio in theme, but with fewer holdings.

• Why the Outperformance?: The BRAVO portfolio performance was generally helped by opportune buying after cash had accumulated within the accounts. The majority of my clients that are invested in the BRAVO portfolio make contributions throughout the year. More than the individual holdings, client’s portfolios seem appear to have benefited from well-timed trades. Additionally, when a portfolio has less holdings and some of those holdings outperform the impact is greater than in a portfolio with more holdings.

• Conclusion: Tactically timed trades can help lead to outperformance.

W. Swartz Total Return (WSTR): +6.8% (after fees)

• About this Portfolio: This portfolio is 100% stocks and used in accounts I manage where the client has about $250,000 allocated to stocks. It is the flagship portfolio of W. Swartz & Co.

• Why the Underperformance?: An underweight to emerging markets relative the benchmark. Historically emerging markets have underperformed developed markets in the late stages of bull markets & early stages of bear markets. While we cannot say how much longer this bull will run & past performance does not predict future performance it seems reasonable that this trend will play out again. I expect as sentiment in the markets improves & more money flows into stocks that chose dollars will gravitate towards seemingly more safe stocks of big blue chips in developed nations. Additionally I expect assets which are less broad & perceived riskier to underperform during the next bear market cycle. In markets it’s always better to be a bit early to the party than fashionably late.

CORE Fixed Income: +4.22% (after fees)

• About this Portfolio:  This portfolio is 100% fixed income correlated securities. Meaning that it may not be invested in individual debt securities, but rather pools of debt securities in the form of ETFs &mutual funds. This portfolio uses the Barclays Aggregate Bond ETF as a benchmark.

• Why the Outperformance? An overweight to high-yield & corporate bonds vs the benchmark led to considerable outperformance in fixed income portfolios for 2016. Moving forward in what is likely to be an environment where rates rise faster than in 2016 I expect lower duration bonds to be an important factor in fixed income portfolios.

Summary: In a world where average investors drastically underperform the asset classes they hold, I am excited to say that my clients achieved market like or better than market returns in their portfolios for 2016.

                                                                                                                                                Wyatt Swartz

2/1/2017