Bonds and Fixed Income Alternatives

Nick Levinson Comments, Life with Money

We’ve discussed the August stock market update, but what about the bond market, or “fixed income,” as it’s also known in financial industry jargon?

Interest rates have risen significantly over the past year and a half, as the US Federal Reserve and central banks around the world have worked to contain inflation. When interest rates rise, bond prices decline, and when rates fall, prices increase (we’re happy to explain this relationship in more detail to anyone who’s interested). This is why bond prices declined so much in 2022 (down 11% for Vanguard’s intermediate-term bond fund), when the benchmark 10-year Treasury rate increased from 1.5% to 3.88%.

This year has been a somewhat different story. Rates have risen further, to 4.09% as of the end of August. So prices have declined, but the offset is that investors are now earning interest at the higher rates. The combination of more interest and slightly lower prices has resulted in gains of about 2% for Vanguard’s short-term and intermediate-term bond funds, and more than 5.5% for the high-yield bond fund.

There are, however, fixed income alternatives that are not subject to price declines as rates rise. These include “purchased” money market funds (PMMFs), which maintain a steady $1 per share price and currently yield in the 5.25% range. You can also buy short-term Treasury bills, which are yielding about 5.45% (for three-month terms) and 5.5% (for six-month terms). As long as you hold these Treasuries to their short “maturity” dates, there are no price declines. By contrast, the yield on the Vanguard bond funds are currently in the 5% range.

At the beginning of 2022, when PMMFs and short-term Treasuries had rates close to zero, there was no question for PPA that the fixed income portion of a diversified portfolio should be invested in bond funds, which were yielding 2-3%. Now, with short-term rates higher than longer-term ones (a situation known as an “inverted yield curve,” which we’re also happy to discuss further if you’re interested), it’s a tougher call. As you know, we never recommend trying to time the markets (in this case, selling all your bond funds to buy PMMFs). But if you have cash available for investment in fixed income, it’s likely to make sense to consider, in consultation with your advisor, a mix of PMMFs, Treasuries, and bond funds.

We will continue to monitor these changes in the markets and are always happy to discuss how they relate to your specific situation.

August Stock Market Update: More to the Story

Corenna Roozeboom Comments, Life with Money

Maybe you thought the August stock market update would be dismal. To be fair, there’s some truth to that.
August Stock Market Update
US stocks, developed international stocks (from countries in Europe and Japan), emerging international stocks (from countries including China, India, and Brazil) … markets from literally all over the world were down during the month of August.

And yet if we widen the time frame a bit, we discover that this year has been quite favorable so far.

Rather than zeroing in on a single month, let’s take a look at 2023’s returns through the end of August. Furthermore, let’s compare them to 2022’s returns through the same point last year.

YTD 2022YTD 2023
S&P 500 Index-17.0%17.4%
Dow Jones Industrial Average Index-13.3%4.8%
NASDAQ Composite Index-24.5%34.1%
Vanguard Total Stock Market Index Fund-17.2%18.0%
Vanguard International Index Fund-19.7%10.0%
Vanguard Emerging Markets Index Fund-15.4%4.7%

Even with August’s declines, compared to last year’s returns during the same time frame, stocks were up by the end of August – and in some cases, significantly.

It’s important to note that this year’s gains began at the end of last year’s losses – in other words, there was lost ground to make up for.

Yet it’s also worth pointing out that anyone who decided to exit the market during last year’s downturn would have missed out on the gains we’ve seen in 2023.

The danger of selling while the market is low is that nobody knows when stock prices will increase again. So, in addition to losing out by selling low after buying higher, you also run the risk of later missing out on any recovery.

So, how do we help our clients avoid the risk of over-inflating the impact of a downturn – or worse yet, making decisions you’ll regret?

For one, perspective.

We can help you maintain focus on the big picture and your longer-term goals. Markets will fluctuate, and there will be down days and months – even years. But by taking a step back and focusing on the long term, however you define that term, we can maintain greater perspective.

More tangibly, we help our clients cushion volatility through a customized asset allocation. As you know by now, it’s your specific goals, timeline, and risk tolerance that informs the combination of assets (stocks, bonds, high yield bonds, and cash) selected for your portfolio.

If you’re risk-averse or working with a shorter time frame, one’s asset allocation will typically include fewer stocks – which generally mitigates the impact of downturns on an overall portfolio.

If you’re more comfortable with risk, or your timeline is longer, one’s asset allocation will typically include more stocks. Increased risk tolerance and/or a longer time frame can help prevent you from making emotional decisions that might trigger regret later.

It’s our job to get to know you, listen carefully, and design an asset allocation that suits your particular needs.

So as long as your time frame remains the same, and there haven’t been any major life changes that would require a change in asset allocation, there’s likely no need to make major changes to your portfolio.

You can move forward with August’s declines in your rearview mirror – and take time to appreciate (at least momentarily) this year’s stock market gains.

• • •
Read our August update on bonds and fixed income alternatives.

The Value of Play

Tom Levinson Life with Money

For the past 15 years or so, I’ve had a very important hold on my calendar on Wednesdays at 5 pm. If I’m in Chicago, I make it there, with surprisingly few exceptions.

My appointment is at the basketball court in our local neighborhood Jewish Community Center. There, 8-10 middle-aged men gather to stretch, play, sweat, hydrate, rinse and repeat until our access to the gym wraps up at 7 o’clock.
The value of play
I first got invited to the game by an older friend. At the time, my wife Elizabeth and I had two kids under five. We both had demanding jobs. We both had to commute, 5 days a week, at the start and end of each workday. Our pace of life felt breakneck. When I look back now, I’m amazed and grateful we held it all together.

If you ask me how we – and more specifically, I – made it through that stretch in one piece, playing basketball is near the top of the list.

Now, I get it – you might be thinking, “Tom, so glad you’re having fun re-kindling your junior varsity glory days, but isn’t that just an escape from the demands and responsibilities of real life?” [Author’s note: my younger glory days on the basketball court were few and far between.]

So why do I give such high marks to what’s really the equivalent of adult recess?

It turns out, play is important for everybody – no matter the age or life stage.

What is “play”? The examples are just about unlimited, but it can be boiled down to something you do because it brings you joy or pleasure, without promising a particular outcome.

As a New York Times article phrased it, “A lot of us do everything hoping for a result … It’s always, ‘What am I getting out of this?’ Play has no result.”

According to scholar Peter Gray at Boston College, there are a few key ingredients of “play”:

  • Play is something you do because you want to, not because you have to.
  • Play is done for its own sake, not for a reward or prize.
  • Play has structure – but importantly, it still leaves ample space for creativity.
  • Play always involves some element of mentally removing oneself from the “real world.” While players have to be thoughtful about their activity, “the person at play is relatively free from pressure or stress.”
  • As a result, the person at play is frequently able to accomplish a mental state called flow. “This state of mind has been shown, in many psychological research studies, to be ideal for creativity and the learning of new skills.”

All of this resonates for me. If you asked me, “Tommy, what do you love about playing basketball?” I’d tell you: I love that when I’m playing, everything else melts into the background. All I’m thinking about is making good passes, hitting open shots, setting good screens, and not getting beat (too often) on defense. Even though we keep score, the focus is always more on process than outcome.
crossword puzzle
One of the really energizing things about play is that it has so many ways to fit different people. Board games are a way to play. Same with practicing music, or woodworking, or building a sandcastle.

For my wife Elizabeth, who studies and teaches about “play” in her work as a psychiatrist and medical educator, making pottery has been a huge source of fun, escape, and community-building over the years. It’s brought her a lot of joy – and our cupboards, a lot of mugs!

Play has residual benefits, too – we learn new skills, explore areas of interest, build relationships, and get re-energized for the everyday.

It’s interesting that play represents a part of our lives where earning money isn’t really a factor. After all, play isn’t a job. And it’s not a hustle, or something you do for pay or for profit.

On the other hand, it often costs a lot to play: big trips offer one notable example. Do you work, save, and invest in part so you can build time and opportunities for play?

At its bedrock, play connects us with our authentic selves – which in turn allows us to make grounded, thoughtful decisions – particularly with our money.

As we launch Year 2 of our “Life with Money” series, we invite you to consider – and share – the ways you play. When you think about what your money is for, is carving out opportunities for play one of the answers?

Drop us a line and let us know about the relationship between money and play in your own life.

And if you’re in our neighborhood some Wednesday at 5 pm, let me know – you can join my game.

A Season of Transitions

Corenna Roozeboom Life with Money

For many of us, Labor Day Weekend indicates a transition.

The unofficial end of summer; the herald of fall activities; a new school year for kids, grandkids, or even ourselves; the subtle shift in nighttime temperatures; the sudden ubiquitous pumpkin spice everything.
season of transition
Within the last few weeks at Park Piedmont, one of us announced a pregnancy. One of us dropped off a kid for her first day of preschool. One of us settled a kid into his first dorm room. One of us helped a kid move cross-country for his first full-time job.

Transitions can be exciting, and they can be difficult. New beginnings, inherently, also signify endings.

One of the joys of our work here at Park Piedmont is both celebrating and supporting others in the many transitions that life serves up. We’re blessed to witness these transitions in each other’s lives, and also in yours.

As we head into Labor Day Weekend, we wish you the very best in whatever season of transition you’re currently living. And, as always, we’re here to both celebrate and support you in it.

The Futility of Predictions

Nick Levinson Comments, Life with Money

As you know, we avoid making predictions about where the stock and bond markets are headed. There are simply too many factors that impact the markets – economic, political, atmospheric too – over the short and long terms.
predicting the future
On the other end of the prediction spectrum, a Morgan Stanley analyst recently made the sheepish admission that “we were wrong. 2023 has been a story of higher valuations than we expected amid falling inflation and cost cutting” (The Street, 7/24/23).

The article goes on to say that the “admission is somewhat surprising given he repeatedly warned this year that the stock market rally would reverse. For example, he told Bloomberg in May, ‘We would characterize this as the bear market is continuing … The fundamental case does not support where stocks are trading today.’

“Those comments were made days before the S&P 500 broke out to a new year-to-date high, rallying by over 8%. The mea culpa hasn’t changed [Morgan Stanley’s] view, though. He remains ‘pessimistic on 2023 earnings.’”

He might be right about earnings, and that stock prices will decline as a result. But he also might be wrong again, multiple times. Why bother?

It’s not just inherently unpredictable factors – like wars, political coups, fires, and earthquakes – that make prediction so difficult, if not impossible. Even when we know something has happened, the markets can react in unexpected ways.

A recent example involves the question of when good economic news translates into good or bad news for the markets.

Jenna Smialek and Ben Casselman wrote about this in The New York Times in an article entitled “Maybe, Just Maybe, Good News Is Good”:

“It had been the mantra in economic circles ever since inflation took off in early 2021. A strong job market and rapid consumer spending risked fueling further price increases and evoking a more aggressive response from the Federal Reserve. So every positive report was widely interpreted as a negative development.

“But suddenly, good news is starting to feel good again … Recent data have been encouraging, suggesting that consumers remain ready to spend and employers ready to hire at the same time as price increases for used cars, gas, groceries, and a range of other products and services slow or stop altogether – a recipe for a gentle cool down.

“Economists and investors are no longer rooting for bad news, but they aren’t precisely rooting for good news either. What they are really rooting for is normalization, for signs that the economy is moving past pandemic disruptions and returning to something that looks more like the pre-pandemic economy, when the labor market was strong and inflation was low …

“One reason economists have become more optimistic in recent months is that they see signs that the supply side of the supply-demand equation has improved. Supply chains have returned mostly to normal. Business investment, especially factory construction, has boomed. The labor force is growing thanks to both increased immigration and the return of workers who were sidelined during the pandemic.

“Increased supply – of workers and the goods and services they produce – is helpful because it means the economy can come back into balance without the Fed having to do as much to reduce demand. If there are more workers, companies can keep hiring without raising wages. If more cars are available, dealers can sell more without raising prices. The economy can grow faster without causing inflation.”

This story appeared just after the S&P 500 index hit 4,589 on July 31, the highest level since the all-time high of over 4,800 in December 2021. The index was up 19.5% for the year, recovering much of the more than 20% declines from 2022.

But since August 1, the stock market has declined significantly, down about 4.5% through August 16. What changed?

On the bad news side, “Fitch ratings lowered the credit rating of the United States one notch to AA+ from a pristine AAA. The firm, citing a ‘deterioration in governance,’ along with America’s mounting debt load, suggested that it could be a long time before that decision was reversed.

“The move – like the drop to AA+ in 2011 by S&P Global, which has kept its US rating there – followed partisan brinkmanship over America’s debt ceiling, which caps how much money the government can borrow” (The New York Times, 8/2/23).

But then came further good news about inflation: “Fresh inflation data offered the latest evidence that price increases were meaningfully cooling, good news for consumers and policymakers alike more than a year into the Federal Reserve’s campaign to slow the economy and wrestle cost increases back under control.

“The ‘core’ inflation index, which strips out volatile food and energy prices … picked up by 4.7% from last July, down from 4.8% in June.

“The upshot was that inflation continues to show signs of seriously receding after two years of rapid price increases that have bedeviled policymakers and burdened shoppers – and the details of the July report offered positive hints for the future. Rent prices have been moderating, a trend that is expected to persist in coming months and that should help to weigh down inflation overall. An index that tracks services prices outside of housing is picking up only slowly” (The New York Times, 8/11/23).

It’s also possible that many market participants simply thought that stocks had risen too far, too fast, and started taking some of the profits earned earlier in the year.
The Futility of Predictions
Whatever the reasons for the market rise through the first seven months of the year, and the decline over the past three weeks, the main point is that we don’t know what will happen at any time in the future. So the attempt to interpret events as good or bad seems futile.

Instead, as we have emphasized in the past, Park Piedmont continues to advocate for clients to develop an allocation between stocks and bonds that’s appropriate for their specific, long-term situation. We recommend making significant alterations to that allocation only based on major life changes, not short-term price changes or news reports, whether they appear good or bad.

Does ESG Investing Have the Impact We Think It Has?

Sam Ngooi Life with Money

I’d like to divest from oil and gas,” I said firmly. My request felt urgent. The world itself was at stake.

It was 2015, and my answer wasn’t what the financial advisor was expecting when he asked how he could help. Todd, who worked at a large investment firm, was assigned to work with me.

This was his introduction. Basically, “Hi, my name is Corenna, and can you help me pull my money out of anything environmentally problematic?”

I had recently earned my master’s degree through a program focused on conservation, and I had spent a fair amount of time thinking about climate change.

As a result, I tried to be intentional in my daily decision-making, including being cognizant of where my dollars were going and what they were supporting. I was far from living a carbon-free life, but I felt good about trying to reduce my footprint when I could.

But one day, a guilty realization struck me. Are any of my efforts worth anything at all if I’m simultaneously investing in the oil and gas industries? I’m literally profiting every time they are.
cognitive dissonance
Like many people, I didn’t really know much about the stock market. I had no idea what I was invested in, or – to be honest – how investing in the stock market really works. So, when I declared that I wanted to divest from oil and gas, I thought it would be as easy as simply declaring my wishes and then someone – in this case, Todd – making it happen.

I don’t remember exactly how our conversation went, but I do remember Todd gently explaining that it wasn’t as straightforward as picking a few companies to avoid. Which companies don’t rely on oil and gas to do business? Hmm. I admitted I didn’t know, but wasn’t it someone’s job to figure it out?

Perhaps even more interestingly, he said that as a fiduciary, he wouldn’t – couldn’t! – let me divest from oil and gas. It was just too early for that. The world still depended too heavily on both.

I remember hanging up the phone feeling exasperated, disappointed, even angry. How would the world avoid climate crisis if investor – myself included – continued to pour money into oil and gas?

I tried not to think about the gap between my values and my investments. It didn’t feel good.

Years later I started working at Park Piedmont, and I thought, “Here’s my chance!” But through ongoing learning from PPA advisors, I’ve come to realize that it still isn’t that straightforward.

PPA Financial Advisor Sam Ngooi explains why.

• • •

Like Corenna, others may also struggle with how best to express one’s values through money. Why can it feel so challenging to achieve? For one, money is emotional. Feeling powerless or overwhelmed by how we use money can be uncomfortable and can cause us to question our identities and how we move about the world.
How do we express values through our money?
Luckily, things have progressed since 2015, and there are an increasing number of options for expressing values within one’s portfolio. For one, ESG investing focuses on environmental, social, and governance data about a company.

Company metrics around carbon emissions, worker safety, leadership diversity, and the like are rolled into a comprehensive score to help guide investors on whether a company is a sound investment. Climate-conscious investors like Corenna might seek out “green” companies that scored high on environmental measures, reallocating their funds away from “brown” companies with high greenhouse gas emissions and low environmental scores.

Alignment between money and sustainability values achieved, right?

Not necessarily. There are more than 600 rating agencies and systems, each with their own methodology that can lead to a single company earning a range of scores. A single numerical score, while easy to digest, combines a range of variables at the expense of nuance.

According to The Atlantic, “A company that has high carbon emissions and an ordinary record on diversity, but excellent corporate governance, can end up with a very high overall ESG score.” For someone who supports diversity and inclusion efforts but prioritizes sound environmental practices above all, a flattened ESG score can obscure the very details that help discern how a company’s values measure up next to their own.
ESG Investing imperfectly aligns portfolios with values
It’s also easy to assume that a high ESG score means a company is proactively progressing towards better practices with a net positive impact. The Atlantic writes, “MSCI, one of the most influential ESG-rating firms, describes itself as ‘enabling the investment community to make better decisions for a better world’ and declares, ‘We are powered by the belief that [return on investment] also means return on community, sustainability and the future that we all share.’”

In actuality, an MSCI ESG rating measures a company’s exposure and resilience to financially material environmental, societal, and governance risks. This means a company might be a big carbon emitter, but if climate change doesn’t pose a big danger to its operations, it might have a higher ESG score.

Some academics and analysts have also questioned whether the E in ESG is useful as it’s currently defined. Recently, Yale Professor of Finance Kelly Shue and Boston College Finance Professor Samuel Hartzmark launched a research project to measure the impact of sustainable investing on “brown” and “green” firms’ environmental impact. Shue and Hartzmark found that green firms with increased investment capital don’t see a huge change in their environmental impact.

As Shue notes in a recent Freakonomics episode, “[Green firms are] mostly services firms that already don’t pollute. So, when they get more money, they continue not polluting. And they’re also not the best candidates for developing green technology because it’s not part of their business model.”

In contrast, brown firms tend to respond to reduced investment capital by becoming more brown, either by cutting back on pollution-abatement efforts or by reducing spending on green initiatives and investments.

Thus, although it’s counterintuitive, divesting from brown firms might be counter-productive. It raises the cost of capital and forces short-term decisions focused on survival, rather than allowing for longer-term decisions focused (we would hope) on more sustainable innovation. This often leads to more pollution rather than less.

It’s important that brown firms have enough capital to innovate. Shue says, “The brown firm typically pollutes 260 times as much as a similarly sized green firm. So, if that brown firm were able to cut its emissions by just a mere one percent, that is actually way better for the environment than the green firm cutting its emissions by 100 percent.”

Shue also points out that brown firms exist in sectors critical to a well-functioning society (e.g., energy, transportation, agriculture, and building materials). “Punishing” these companies through financial failure is not only counterproductive to their progress but also might have unintended negative consequences on society as a whole.

This realization has given rise to investment options and initiatives that engage with brown firms to make them greener, such as by using ESG data and shareholder voting to encourage more sustainable policies.

So, avoiding companies with low-ESG scores might not have the impact we expected. Maybe you’re surprised by that too.

Does that mean ESG investing is pointless, or that it won’t continue to improve? Should we give up altogether?

Not at all.

The key is to shift our thinking and expectations. We can recognize that relying on an ESG ranking or score to guide investment/divestment choices is certainly a convenient option, but not a perfect solution for clear conscience investing either.

That said, a significant benefit of ESG data is the increased transparency and detail it provides about a company. More than ever before, investors have information at their fingertips to guide their decision-making.
Aligning finances with values
And if the journey feels overwhelming – as it did for Corenna in 2015 and, as she’d admit, it still sometimes does – remember, you don’t have to travel it alone.

Our job as advisors is to walk alongside you, to share new information as it becomes available, and to help you align your finances with your values and goals – whether you’re focused on the short-term, the long-term, or generations into the future.

June Market Activity: Stocks and Bonds Continued Their 2023 Recovery

Nick Levinson Comments, Life with Money

Stocks and bonds continued their 2023 recovery in June from the dismal results of 2022. Broad-based US stocks rose 16% through the end of June, while developed country stocks increased 11% and emerging markets stocks were up 5%. The tech-heavy NASDAQ index climbed almost 32% through half of 2023.

Bonds also had positive returns through June 30. With the benchmark 10-year Treasury remaining relatively high at 3.81%, down slightly from 3.88% at the beginning of the year, income has increased while prices have remained stable. US bonds rose 2.6% in the first half of 2023, while high-yield bonds increased 4.4% and inflation-protected bonds were up 1.8%.
Stocks and bonds continued their 2023 recovery in June
Interest rate increases by central banks around the world, attempting to contain inflation without causing recession, remain among the most closely watched economic indicators. The US Federal Reserve is focused on engineering a “soft landing” from the historic inflation in 2022, but opinions differ as to whether that will happen.

As Talmon Joseph Smith writes in The New York Times, “For a year or more, worries about an impending recession have dominated discussions about the economy. Most economists expected a recession to hit the US by now – in part because of the rapid escalation of interest rates. That increase in the cost of credit has caused shocks in the banking sector and, for a while, put a lid on the housing market.

“But the dampening effect of higher rates has confronted the robust income and spending of many households and the staying power of businesses – both buttressed by emergency pandemic support from Congress and the Fed. Though families, business managers and investors alike have had to contend with the frustrating realities of inflation and economic uncertainty, growth has continued, almost defiantly.”

“[But] a growing cohort of investors believes that sustained growth could plant the seeds of its own destruction, as the Fed reacts by keeping borrowing costs higher for much longer than businesses have anticipated. That could make some debt burdens unsustainable for businesses, especially those that rely on loans or lines of credit from banks or that may need to seek new funding from investors.”

Matt Grossman, writing in The Wall Street Journal, suggests the possibility that rates need to be even higher than they are now, possibly beyond the one or two additional rate increases expected from the Fed later this year:

“Investors generally expect higher interest rates to cool the economy, as part of the process known broadly on Wall Street as “tightening financial conditions”—a constellation of higher mortgage rates, rising bond yields and generally lower asset prices. Together, these factors tend to reduce the amount of money coursing through markets, for instance by making it harder for people and businesses to get loans.

“But one complication is that it is hard to know in real time whether conditions are actually tight or whether they just look that way, particularly when inflation… hit its highest level since the early 1980s.

“Understanding whether financial conditions are tight or loose is challenging because a key variable is hidden from view, economists say. What matters isn’t the absolute level of the Fed’s target rate, but rather whether it is higher or lower than a hypothetical “natural” rate that would neither slow nor stimulate the economy.

“Economists say that financial conditions only tighten when market interest rates rise firmly above the natural rate. The natural rate can’t be measured directly, and it changes over time—rising when demographic or technological changes improve the economic outlook, and falling when underlying prospects dim. If it has risen considerably over the past two years, it is plausible that the Fed hasn’t tightened monetary policy as severely as its dramatic rate-hike campaign would suggest.

“Scott Sumner, a monetary economist who recently retired from George Mason University, thinks that the natural rate has climbed sharply—pushed higher by the Fed’s monetary stimulus during the pandemic—muting the effects of the Fed’s 5-percentage points of rate increases over the last 18 months.

“’Most people would interpret higher rates as tighter policy, but you can’t necessarily jump to that conclusion,’ Sumner said. ‘If it were truly a tight monetary policy, I’d expect stocks to be depressed.’”

As always, we will continue to monitor the markets, but still recommend a long-term perspective with diversified allocations to stocks and bonds based on your specific financial situation.

One other important recent piece came from Jeff Sommer in The New York Times. He discusses the current attractiveness of bonds and cash, even as the stock market has made a strong recovery so far in 2023:

“Amid all the hoopla [surrounding a possible Artificial Intelligence-driven stock bull market], you can easily miss the solid returns being posted by far less glamorous but always important and, at the moment, compelling asset classes: fixed income investments, including bonds and cash.” [PPA note: The highest-yielding cash investments these days are referred to as “purchased” money markets funds.]

“Especially for those with short time horizons – whether you’re in retirement or close to it, or saving for a house, education, a car, a vacation or any other worthwhile purpose – those lower-risk investments are worth a close look. They provide solid income with much less risk than stocks – in theory, anyway.”

After a terrible 2022 for bonds, when prices declined in the range of 15%, “bonds are more reliable than they were last year because yields are already high. Even if they elevate further, there is a plush cushion now, and any potential price declines should be offset, and then some, by the income that bonds are generating.”

Please don’t hesitate to let us know if you’d like to discuss these or any other topics in additional detail.

Artwork and Collectibles: For sentiment, investment, or both?

George Gotthold Life with Money

I read recently that Sotheby’s will auction off Queen front man Freddy Mercury’s very eclectic collection of personal items this fall. Included are his handwritten notes and lyrics to Queen’s iconic anthem, “We Are the Champions.”

Sotheby’s expects to offer it at $250,000. This is an expensive piece of music history – though way short of Bob Dylan’s handwritten notes for “Like a Rolling Stone,” which sold for $2 million in 2014.

I don’t consider myself a packrat (other family members may disagree), but I do have a fair amount of “stuff,” most of which has absolutely no monetary value but does hold significant sentimental value. My office décor includes some collectibles and a fair number of personal items.

One item in particular that has absolutely no value – other than being an extremely heavy paperweight – is a jeweler’s vise from “Gotthold Jewelers,” a jewelry store my family owned and operated from the late 1800s until the early 1960s.
collectibles as investment
I did, however, learn recently that my first guitar, a 1972 Fender Mustang, is somewhat collectible – it’s appreciated significantly from the $100 it cost 50 years ago.

How much do you think it’s worth now? (Answer at the end of the article!)

• • •

Artwork and collectibles have always had a place on the decorative walls of society. People enjoy the beauty (nothing pretty about a company stock certificate) and tangibility of art. Artwork and collectibles are great conversation starters: tell me about this piece, who is the artist? How did you learn about them, and why is the piece special to you?

We’ve all heard stories of finding valuable works of art at garage sales or stumbling upon a rare baseball card in a parent’s attic. But have you given any thought as to what you would do if you learned one of your personal possessions or collectibles suddenly increased in value? Would it change the way you look at it or appreciate it? Does it take away or add any sentimental value?

Take, for example, if you learned that painting hanging in your living room that you purchased years ago from an unknown artist is now very valuable. Do you sell it, or does it bring so much happiness to your home that you can’t imagine parting with it? Do you now think of it as an investment?
investing in artwork and collectibles
Adding artwork or collectibles to one’s asset collection can be rewarding from both a personal enjoyment perspective and – at least potentially – a financial one. In addition to artwork, some of our clients have purchased (not invested in) tangible collectibles such as a rare baseball card collection, antique jewelry, pottery, rare vintages of wine, antique cars, and music memorabilia. Everyone enjoys a conversation piece. All these items can bring value to our lives and make wonderful additions to our home.

At the same time, purchasing these types of assets can also be quite risky. There is never a guarantee that a purchase will appreciate at all, let alone dramatically. We would also call them “illiquid” assets, in the sense that they can be expensive and time-consuming to buy or sell. (“Liquid” assets, by contrast, include your investment portfolio, where purchases and sales can be done at low or no cost and very quickly.)

For most clients, artwork and collectibles aren’t part of an overall financial plan and wouldn’t be considered part of the assets needed to attain one’s financial goals. (That’s not always the case; individual client portfolios of course vary.) We would think of artwork and collectibles as existing on the periphery of one’s asset allocation. We encourage clients to enjoy them from a purely aesthetic perspective. If they appreciate significantly in value, that’s a bonus.

For clients whose artwork and collectibles are a significant asset, PPA can provide advice as to how these illiquid assets fit into an overall portfolio and incorporate them in the retirement planning illustrations we run for clients.

• • •

In the case of my 1972 Fender Mustang – it’s now worth about $10,000. Not a bad return over the past 50 years! Not quite enough to fund an early retirement, but I could certainly find a way to spend it since my rockstar dreams never quite came to fruition.

At the same time, I’m not ready to play that last chord – so for now it’ll stay a conversation piece in my collection.

Sentimental value wins again.

Celebrating Juneteenth

Tom Levinson Life with Money

The Park Piedmont team will be off this coming Monday, June 19, in commemoration of Juneteenth National Independence Day. Juneteenth is a federal and public U.S. holiday on which federal banks are closed. Stock and bond markets will be closed as well. We will return on Tuesday, June 20.

Juneteenth is at once a long-running holiday and one whose name and meaning may still be new-ish – so we want to take a moment to share a bit about the holiday’s history, along with other resources if you’d like to learn more.

Alternatively referred to as Emancipation Day, Freedom Day, and Jubilee Day, Juneteenth is a holiday that takes place each June 19 to recognize the emancipation and freedom of the African Americans enslaved before June 19, 1865.

The Juneteenth celebration began with the freed slaves of Galveston, Texas. While the Emancipation Proclamation freed the slaves in the South in January 1863, in reality it was practically unenforceable any place not under control of the Union Army. Until the Civil War ended in 1865, this was the case across large swaths of the country.

Even then, it took an additional two months for news of the war’s end and emancipation to reach all enslaved Americans. It was on June 19, 1865, when Union Maj. Gen. Gordon Granger and his troops arrived at Galveston, sharing the news that the war was over and the enslaved were now free.

During his visit to Galveston, Granger delivered General Order No. 3, which stated:

“The people of Texas are informed that, in accordance with a proclamation from the Executive of the United States, all slaves are free. This involves an absolute equality of personal rights and rights of property between former masters and slaves, and the connection heretofore existing between them becomes that between employer and hired labor.”

The following year (1866), the now-free African Americans started celebrating Juneteenth in Galveston.

Juneteenth observance has continued ever since, although widespread Jim Crow laws enforcing racial segregation compelled the celebrations to take place in private (non-public) spaces well into the mid-20th century.

Park Piedmont Advisors is a firm that has long valued financial independence and serving our clients’ best interests with thoughtfulness and integrity. As we approach our work, we are hopeful about the future and, at the same time, clear-eyed about the widespread injustices of the past. We are mindful of the continuing racial wealth gap that originates from the institution of American slavery, and the myriad ways that a lengthy history of legally-sanctioned segregation has contributed to ongoing inequality. As individuals and as a firm, we welcome the opportunity to celebrate Juneteenth and take seriously our ongoing responsibility to be informed and engaged citizens.

We invite you to learn more about the historical, economic, and cultural legacy of Juneteenth through some of the following resources:

May Market Update: A Crisis Averted

Nick Levinson Comments, Life with Money

To the surprise of many, the US debt ceiling issue was resolved relatively peacefully in the last week of May into early June. President Biden and House Speaker McCarthy worked out a deal that pleased few of the more extreme members of both political parties, but which raised the debt ceiling until early 2025 in exchange for modest spending cuts over the next year and a half.
May Market Update: A Crisis Averted
Compromise like this is how government is supposed to work, and appears to offer glimmers of hope that the parties can work together to accomplish important (or at least existential) things. It’s a pretty low bar, unfortunately, but in light of the deep divisions across the country, we think represents at least some progress.

With that potential crisis out of the way for now, we return to the more substantive issues affecting the world economy and financial markets:


Price increases continue to moderate in the US and worldwide as most central banks keep raising interest rates, or at least not cutting them yet. The Federal Reserve has raised rates ten times since 2022, and many observers think they might pause on the increases at their meeting later this month. But strong employment numbers and consumer spending in May could change that decision, either in June or later this year. It remains to be seen when the Fed will cut rates again if inflation persists.


If inflation does stay high and central bankers continue to increase interest rates, it’s possible that economic activity could slow enough in the US and elsewhere to produce recessions. Recent data appears inconclusive in the US, with employment and consumer spending holding up, as mentioned above, while manufacturing activity and housing, among other areas, slow.

“Investors are more concerned about whether the economy will fall into a recession before inflation recedes enough to convince the Federal Reserve to take it easier on interest rates.

“Reports Thursday (June 1) gave a mixed view. One said that fewer workers filed for unemployment benefits last week than expected, while another suggested employers increased their payrolls in May by more than forecast.

“That’s good news for workers and the overall economy, which has been slowing because of higher interest rates. But a strong job market could keep pressure up on inflation, pushing the Fed to keep rates high.

“On the flip side, manufacturing is continuing to get hit hard. A report from the Institute for Supply Management said manufacturing shrank for a seventh straight month in May” (Los Angeles Times, 06/01/23).

If a recession does happen, it could be short or long, with varying impacts on the stock and bond markets. As with all these issues, only time will tell.


An additional reason why the Fed might stop raising rates for now is the impact on the banking industry. Higher interest rates mean lower prices for existing bonds, and those lower prices have played a significant role in the recent failures of Silicon Valley Bank, First Republic Bank and Signature Bank. We haven’t heard of any other potential major failures of late, but that could change if rates continue to rise significantly.

• • •

In the context of all these potential problems, the stock and bond markets have continued to bounce back from the major declines of 2022. US stocks have risen 8.7% through May 31, with international stocks up 6.4%.

On June 6, the S&P 500 rose to a level 20% above the low point from October 2022, at the bottom of the recent bear market. This is a typical definition of the end of the bear market and the beginning of a potential new bull market.

The benchmark 10-year Treasury bond ended May at 3.64%, and US bonds have risen 3.1% for 2023 so far.

Are the markets performing with excessive optimism given the serious economic and financial challenges we still face? Or are the recent increases reasonable in light of ongoing progress in the battle against inflation?

As always, we’ll continue to monitor what happens and keep you informed. Please check in with your PPA advisor at any time if you have questions or concerns.