What It Means & What It Takes to Become a Certified Financial Planner

Nate Levinson Life with Money

Although Park Piedmont focuses primarily on providing investment advice, our advisors also assist clients with broader financial planning work. Financial planning is the process of evaluating a client’s financial situation and developing a roadmap to help them meet their short- and long-term financial goals.

The CERTIFIED FINANCIAL PLANNER™ designation is one recognition of expertise in financial planning. A number of our Park Piedmont team members hold this certification, and I am currently working toward becoming a CFP professional as well. We thought it might be interesting for you to get a look “under the hood” of the CFP certification process, while I’m going through it.

There are four requirements for attaining a CFP certification, which are known as “the four E’s”: education, exam, experience, and ethics.

The education component involves taking several courses that each cover a specific area of financial planning. The topics covered in the coursework include investing, retirement planning, estate planning, insurance, income taxation, behavioral finance, and more. Depending on the educational program, each course usually takes about two to four months to complete and is followed by a test that must be passed to move on to the next course in the sequence.
Certified Financial Planner
Once the education piece is completed, the candidate begins studying for the official CFP exam, which integrates knowledge from each of the educational courses. The exam consists of 170 questions and is taken in two three-hour segments.

Next, the CFP Board requires that candidates have 6,000 hours, or approximately three years, of experience engaging in some form of financial planning work. This can include one or multiple aspects of putting together a financial plan, from gathering client information to identifying their needs and goals to implementing plan recommendations.

Finally, the ethics requirement involves signing a declaration, attesting that a candidate will adhere to the CFP Board’s Code of Ethics and Standards of Conduct. These documents specify CFP professionals’ duties to their clients, employers, etc. and outline what it means to act ethically in the context of financial planning. A primary emphasis of the Code of Ethics is that CFP professionals have a fiduciary duty to their clients, which involves acting in the client’s best interest, avoiding conflicts of interest, and maintaining client confidentiality. We at Park Piedmont have served our clients in a fiduciary capacity since our founding – so the expectations for CFP professionals are closely aligned with our own. Due to all the requirements and steps in the CFP certification process, it typically takes about three years to become certified, assuming the experience piece is completed concurrently with the education component.

Between the required months of studying, years of practicing and applying knowledge, and stringent ethical standards, the CFP certification process prepares advisors to craft plans that are individually tailored to a client’s needs and goals. Our colleague Sam Ngooi, who spent two years studying for the CFP exam during evenings and on weekends, and received her CFP certification last summer, told me:
Certified Financial Planner
“Having knowledge in each of the CFP subject areas enables me to put together the various puzzle pieces of a person’s financial life and help them develop a plan that is holistic and comprehensive. And because clients entrust us with details about their lives and their money, CFP Board’s stringent ethics and education requirements are also important for building trust and providing clients with peace of mind. Not everyone in the financial service space is required to put a clients’ best interest before their own, and it’s meaningful to be able to say that we do.”

Personally, I decided to begin the CFP certification process because I knew I wanted to pursue a career in the financial services industry, but I felt I lacked much of the knowledge I would need to be successful. I had majored in Economics in college, but the classes I took focused on theoretical principles and models, as opposed to real life applications and personal finance. My classes certainly did not touch on anything related to investing, a topic I was particularly interested in learning about. Straight out of college, I worked at an insurance company for about two years, so that was the only financial planning topic I felt I had a strong grasp of going into the CFP certification coursework.

I started the education component of the CFP certification in January of 2022 and am currently almost done with the final course. I went into the process with the most excitement about the investment and retirement planning courses. I believed that these would not only be the most interesting topics, but also the most practical for my role at PPA, and in many ways that has been true. And although I wasn’t as excited for the courses on estate planning and income taxation, I found those to include some of the most engaging material. For example, during the income tax course, I realized that income tax is at the core of what PPA does, and a person cannot advise on any investment or retirement matters without a deep understanding of how the US income tax system operates. I also found the section on behavioral finance, or the study of investors’ psychological biases, to be particularly fascinating because it presented a more “human” side of financial advising that I had not previously encountered.

Overall, I have found the CFP certification process to be vital in my day-to-day work at Park Piedmont. It has provided me with a range of very specific financial planning knowledge, like how to calculate a client’s required savings rate to meet a specific goal and the tax implications of selling various investments, as well as more general financial topics, like the tools of monetary and fiscal policy and the factors that impact one’s credit score. I plan to take the exam in July of this year, and I have about one year of experience to go before I can become officially certified.

CFP certification is a significant time commitment and has taken up many of my weeknights and weekends since the start of 2022. But I have learned more in that time than I ever thought I would. Even after I complete the CFP certification process, I plan to continue learning about investing and behavioral finance, along with many of the other topics the CFP certification has covered.

—

Read “Is Your Financial Advisor a CERTIFIED FINANCIAL PLANNER™” in the Piedmont Exedra.

In Defense of Real Things

Corenna Roozeboom Life with Money

Moving to a new home when we were 38 weeks pregnant wasn’t ideal, I’ll give you that.

But then our moving truck’s engine spontaneously caught on fire and exploded. Nearly everything we owned — packed Tetris-style onto that truck — was gone. We hadn’t planned for that.
real things
It was a full 24 hours before my husband pulled out a chair and asked me to take a seat to deliver the news. The plan had been to move out of our condo and into a new one a few days later, and we were staying with family in the interim.

I remember him starting with something along the lines of, “The important thing is that everyone is safe. We’re safe, our baby is safe …” My heart raced. What happened?!

I let out a loud, maniacal cackle immediately after he told me we were essentially possession-less. What’s that sound? I wondered. Oh! That’s coming from me. The laughter became more unhinged with each passing moment. “You can’t make this stuff up,” I gasped as tears of laughter streamed down my face.

Equally surprised by my reaction as I was, he took a slow exhale, shook his head, and laughed. “No,” he agreed. “You can’t.” I continued to laugh uncontrollably. I couldn’t stop. And then, suddenly my laughter turned into sobs.

• • •

“It’s just stuff,” we kept telling ourselves over and over through our tears that night. “It’s just stuff.”

Over the coming weeks, months, and now almost years, I found myself mourning that stuff. The bench from our front entryway. Our salt and pepper shakers. A framed greeting card. Some place card holders. A large collection of gardening books.

I also found myself feeling guilty for experiencing so much grief over … stuff. To be sure, some things I didn’t miss at all. But it’s remarkable how much I still do.

Take the bench. We bought it at an antique shop on our honeymoon. It had felt like an extravagant purchase, but it also felt like the perfect way to begin making our new home together. So we splurged and never regretted it.

The salt and pepper shakers were a gift from my brother and sister-in-law, who bought them as souvenirs for us in Switzerland. I thought of them every time I used the shakers. The greeting card came from a beloved team of coworkers my last day on the job. The place card holders were left over from our wedding, handmade by my husband and father-in-law. The gardening books represented a nostalgic time in my mid-20s when I was going to save the world, one garden at a time.

Our home was not large — just one bedroom, the reason we were moving in the first place. But despite its size — or rather, maybe because of its size — it was filled with stuff we loved. Anything that made the cut had purpose or meaning or both.

• • •

As a teenager, I was an expert eye-roller, and my parents — bless them — were usually the undeserving recipients. For years I found my dad’s aversion to anything that could be perceived as “fancy” to be particularly exasperating. But as he still maintains today, he doesn’t like anything too “bourgeois.” (Cue the eye roll.)

Yet my dad also deeply appreciates what he calls “Real Things.” A Real Thing has meaning and value outside of itself, for any number of reasons. Maybe it was made by hand, maybe it was a gift; maybe it was longed for, maybe it was a happy surprise; maybe it holds a memory, maybe it serves as a symbol. Undoubtedly it tells a story, and quite likely it connects us to others. A home filled with Real Things is a home filled with love.
in defense of real things
While my dad’s collection of Real Things may look different from mine or yours, I stopped rolling my eyes at those words when I moved out of my parents’ house. When I had a home of my own, I finally understood.

• • •

As we’ve written before, studies show that people are in a better mood when they reflect on experiences they’ve purchased, rather than on stuff. Likewise, gift recipients are more likely to value an experience or activity over material objects.

This is because, as James Hamblin writes in “Buy Experiences, Not Things,” “experiential purchases are … more associated with identity, connection, and social behavior.”

Yet, as described in a recent piece in The New York Times, much of the stuff we surround ourselves with is valued “for its connection to another person, a place, a time in our lives, a meaningful affiliation.”

In other words, Real Things.

In her Atlantic article “For the Love of Stuff,” Julie Beck shares a quote from Dr. Russell Belk: “It seems an inescapable fact of modern life that we learn, define, and remind ourselves of who we are by our possessions.”

And she writes: “The loss of possessions, ones deeply associated with the self, can cause real grief … If your house was burning, and you had no time to save your favorite things, you might feel like you’d lost part of yourself.”

• • •

Wow. That last line certainly hit home.

Mindlessly accumulating stuff for stuff’s sake won’t bring happiness or contentment. And yet, the stuff we surround ourselves with, those things that tell the story of our lives — the people we love, the memories we cling to, the beliefs we hold dear — those are Real Things. And surely there’s value in that.

—

Read “In Defense of Real Things” in the Piedmont Exedra.

2022 Year-End Market Update

Nick Levinson Comments, Life with Money

Happy new year! While the past year had some good news (see Economist article, “What 2022 Meant for the World”), we hope 2023 brings some relief for the financial markets.

As you probably already know, 2022 ended with stocks and bonds down significantly, despite gains in the fourth quarter.

The US, developed, and developing international stock markets all declined between 15% and 19% for the year, with the US off the most of the three broad stock categories (figures are for Vanguard’s Total US Stock Market index fund, Developed Markets index fund, and Emerging Markets index fund).

The declines were tempered by fourth quarter increases of 7-8% for the US and developing international, while developed international rose a stunning 17% for the quarter. These declines followed three years of strong returns for global stock markets, with the US rising 31% in 2019, 21% in 2020, and 25% in 2021.

2022 year-end market update Bond prices declined even more than stocks relative to their typical performance, with high credit bonds down 13% and high-yield bonds down 9% for the year (figures are for Vanguard’s Total US Bond index fund and High-Yield Corporate Bond fund).

As Wall Street Journal columnist Jason Zweig put it in mid-2022:

“For most of the four decades since 1981, interest rates have been falling and bond prices rising, creating a tailwind of capital gains for fixed-income investors. You not only earned interest on your bonds but pocketed extra profit as they went up in value.

“Over some long periods, such as the 20 years ending in March 2020, bonds earned even higher returns than stocks, without any of their bloodcurdling losses.

“Those glory years are gone …

“According to Edward McQuarrie, an emeritus professor of business at Santa Clara University who studies asset returns over the centuries, … the broad bond market has performed worse so far in 2022 than in any complete year since 1792 except one. That was all the way back in 1842, when a deep depression approached rock-bottom.”

But here too, the declines leveled off in the fourth quarter, when high credit bonds rose almost 2% and high-yield close to 5%. The full-year declines similarly followed strong returns for the bond markets in 2019 and 2020, with US high credit rising 9% and 8%, respectively. (Bond prices declined almost 2% in 2021 as inflation started to rise.)

The stock and bond price declines stem largely from global interest rate increases in 2022, designed to tamp down persistent inflation around the world. The US Federal Reserve raised the short-term rate it controls from 0% at the start of the year to almost 4.5% at the end.

These interest rate increases have started to moderate inflation, which peaked above 9% in June and declined to 7% in December. The inflation reductions, and the Fed’s lower rate increase in December (0.5%) than earlier in the year (four 0.75% rate hikes), appear to have played a significant role in the stock and bond market gains in the fourth quarter, which have continued into the beginning of 2023.

The big questions for the markets going forward are whether inflation will remain high, and if so, how aggressively central banks around the world will continue to raise rates in response.

Large rate increases could lead to global recession and further stock and bond price declines. Smaller increases could produce a “soft landing” that would raise market prices with a minor recession or none at all. Other important factors include a possible resurgence of Covid, ongoing war in Ukraine, international tensions with China, and economic policy gridlock in the US.

Despite the declines and on-going uncertainty, PPA continues to advise sticking with asset allocations appropriate for your specific situation. As Zweig noted about 2022 in a more recent column:

“Risk-return relationships aren’t always normal, though—and that’s exactly the point.

“Stocks normally go up—but not always. Bonds normally are safer—but not always. Nothing in financial markets is constant or permanent.

“We could already be in a radical new era of rising interest rates and raging inflation. The more sensible assumption, though, is that a once-in-a-blue-moon bad year for bonds doesn’t invalidate decades of data showing that, on average, they can effectively diversify the risks of stocks.”

New York Times columnist Jeff Sommer made a similar point in his Dec. 16, 2022, column:

“Because the stock market tends to rise over long periods, and because bonds are now generating reasonable income (as I explained last week), it’s wise to invest for a long-term horizon in low-cost index funds that track the entire stock and bond markets.

“Don’t base your investments on specific predictions of where the stock market is heading over the short term, because nobody knows. Making bets on the basis of these forecasts is gambling, not investing.”

We will continue to monitor economic conditions and consult with you about your specific situation and investment opportunities. As always, please feel free to check in with your PPA advisor with questions and comments.

—

Read “2022 Year-End Market Update” in the Piedmont Exedra.

6 Intentions for Life & Money in the New Year

Sam Ngooi Life with Money

Greetings and Happy New Year!

Some 4,000 years ago, the Babylonians rang in the new year by making promises to pay debts and return borrowed farm equipment. Since then, people across the globe have rung in the new year with vows to make improvements in their lives. Like magic, the stroke of midnight sends folks scurrying toward the shiny, hopeful promise of a fresh start, leaving the tattered old year behind. As they say: new year, new me. Right?

Probably not. Eighty percent of people who make new year resolutions will abandon them by mid-February.
calendar
Not to be all doom and gloom in our first newsletter of the year, but it’s hard to deny we’re overdue for a fresh approach to new year goal-setting. For starters, let’s nix the idea that a trip around the sun calls for a complete identity reinvention.

Instead of resolutions, I’m trying something new this year by choosing some guiding principles, or intentions. Intentions feel kinder, less black-and-white, and more easily woven into the fabric of daily life.

Maybe you skipped the resolutions this year or haven’t gotten around to making any yet. Maybe you’ve already broken a few. Everyone’s situation is unique, but hopefully these six intentions offer a nugget of inspiration as we settle into the new year. And, since this is Life with Money, there are suggestions for practicing each intention in one’s financial life.

1. Reflect

As one roller-coaster year loops into another, slowing down can prove challenging. This year, I’m catching my breath by carving out time to reflect, and I invite you to join me. Let’s start by taking a moment to regroup and review: Where have we been?  Where are we going?  What matters the most?  How might we get there?

LWM: For your financial life, this is as good a time as any to reflect on your game plan. Have your goals or timelines changed?  Are there new priorities on the horizon to prepare for?  (A ‘yes’ is a sign you might be due for a check-in with your advisor.)

2. Savor

Daily walks around the neighborhood are a new and beloved pastime in my household. My partner has a keen eye for urban wildlife and unabashed love of snow. Each walk together is a reminder to delight in the everyday and to stop and smell the (actual) roses. These little mindful moments are an opportunity for gratitude and a perspective shift—I’m hoping for many more this year.

LWM: No need for good walking weather here; savoring life with money can be as simple as enjoying and taking stock of the things we already have. Noticing that crunchy apple or flipping through that family vacation album helps us appreciate the ways we’ve spent our money and helps us be more thoughtful about future spending.

3. Invest

This year, PPA team members are investing their time in various pursuits. Leslie keeps a daily calendar reminder to walk outside and tend to her plants, while Nate sets aside time each night to study for the CFP® exam. Amanda is carving 15 minutes of “me time” out of each day to read, meditate, etc., while I’m joining a weekly watercolor class at our community art center. By committing to small habits, we’re finding ways to invest in our interests, selves, and wellness. Just like invested dollars, our invested time and effort will compound throughout the year.

readingLWM: There are plenty of ways to practice financial wellness. Perhaps that involves bumping up retirement contributions or paying off lingering debt. Maybe it’s taking time to review your employee benefits or read up on a financial literacy topic that feels intimidating and confusing. Whatever this looks like for you, consider the benefits of compounding, where even small steps yield meaningful dividends over time.

4. Simplify

Life is short and the to-do lists are long! If life’s regular jumble of tasks, calendar events, and important documents wasn’t overwhelming enough, the new year brings a wave of seeming “musts,” insisting that we adopt a new meal plan, exercise regimen, or 21-day system in hopes of any happiness this year. Where to begin? This year, I’m focused on reducing complexity and parting ways with systems that aren’t working (and keeping ones that do).

LWM: First, it helps to tackle tasks a little at a time. Maybe it’s the thing you dread most, or one that motivates you to take on more. Some suggestions from our client service team:

  • Roll over a former retirement plan
  • Update an old address or phone number
  • Send back that form you’ve been meaning to sign
  • If your goal is to save more, why not set up automatic transfers to take this task off your plate and mind?

This can also be an opportunity to review your budget and find areas where spending less might do. Alternatively, consider taking a step towards decluttering your financial life (e.g., signing up for electronic Schwab statements or closing an old account). After all, a year of simplifying can also be about reducing worry and stress, too.

And while we’re finding systems that might work, set up an accountability buddy to check-in when you need the extra nudge. We can help with that.

5. Flow

The world is wild and unpredictable, that much we surely know by now. Fellow worriers know it’s hard not to lose sleep over the unknown. This year, let’s work on controlling what we can  and letting the rest go. In building a stable foundation, we’re better able to embrace change and roll with the punches, knowing we’ve prepared as best we can for the worst. It also helps refocus our attention on the things within our control.

LWM: Take some time to review your plans for the unexpected. Confirm account beneficiaries (and estate planning documents, if applicable) are accurate and up to date. Review insurance coverage to ensure coverage amounts are appropriate, beneficiaries are updated, and payments are current. Do a gut check of your emergency fund amount and savings rate, and how comfortable you’d feel relying on it.

6. Share

When we share our time, resources, and ideas with others, we’re reminded that we have enough of these things to fill our cup and then some. The pervasive feeling of scarcity and “never enough” can seep into one’s spirit, so the opportunity to give to others can shift our thinking into one of abundance. Plus, practicing generosity and thoughtfulness towards others feels good! On a deeper level, sharing can also be about connections and opening up to others. chattingFor some, this might mean catching up with an old friend or setting up a standing Zoom date with a family member. For others, it’s having a conversation about money that requires a little self-reflection and vulnerability. At PPA, sharing is about finding more ways to engage in conversations about money in ways that resonate for us and our clients.

LWM: Consider the ways you’d like to share your time, resources, or wisdom this year. It can be as small as buying coffee for the person behind you in line or preparing a meal for a friend going through a tough time. Maybe you decide to make charitable donations, set up a Donor Advised Fund (DAF), or volunteer your time to a cause that’s meaningful to you. Perhaps you help start an account for a younger family member and spend time imparting the valuable financial lessons and skills you’ve collected over the years. Better yet, what if this year, your family explores charitable giving and volunteering as a group, finding new ways to connect and express values together?

• • •

 

Whether you decide on an intention or a goal, here’s a suggestion: pick one, write it down, remind yourself frequently, and let your year unfold. Remember that progress, not perfection, is the goal.

We can do this. Are you with me?  Wishing a happy new year to everyone.

—

Read “6 Intentions for Life & Money in the New Year” in the Piedmont Exedra.

It’s Not a Race: Considerations for a New Year

Tom Levinson Life with Money

One recent, unseasonably mild late afternoon, I hopped on my bicycle toward my regular mid-week basketball game. A main nearby boulevard has a bike lane, and heading out, I felt great. A comfortable breeze. A nice, easy pace.

As I pedaled, I could feel, over my left shoulder, an approaching presence. I turned to look, and what I saw was, candidly, pretty humbling. Steadily gaining on me: an older man, mid-60s, wearing a canvas raincoat and matching fedora and riding a simple 3-speed. He had “professor” written all over him. Notwithstanding his academic garb, ho-hum bike, and (ahem) seniority, he was pedaling comfortably and still passing me easily.

My immediate reflex reaction: you can’t lose to Mr. Chips! Go faster, pump your legs harder. And for a moment, I did.
cycling
Until I asked myself, what are you doing? An exceedingly dapper older guy passed you – so what? Just because he’s going faster (while looking better) doesn’t mean my ride needs to become a sprint. So I took a breath, and watched him pedal away.

It is surprisingly easy for our financial lives to follow a similar pattern. You’re on your own trajectory when suddenly, some new thing emerges, or your neighbor brings home a [fill in the blank], and instinctively, you register yourself in a race you never intended to sign up for.

At Park Piedmont, one important role we play as your advisors is to help you discern your goals, your timeline, and your values, then keep you focused on reaching them. Our financial lives are not a competition – not with other people, and not with some other, idealized version of ourselves. We don’t need to race anyone else.

As we say farewell to 2022 and look ahead to the new year, we thank you for the opportunity to work together and look forward to continuing to be your trusted advisors.

While we can’t predict what the new year will bring, we can share one coming attraction. Early in the new year we will be releasing our first Park Piedmont book on investing. We have been working on this project for several years. It has been a real labor of love, and we can’t wait to share it with you.

Wishing you and yours a happy, healthy new year.

Just Give: Resources for Philanthropy & Thoughts on Effective Altruism

Nick Levinson Life with Money

For those of us fortunate enough to have the interest and financial capacity, the end of the year is often the time to make charitable gifts. Many of you contribute to schools you attended and local non-profits, and those gifts are typically much needed and appreciated. In addition to the good these organizations are doing in the world, there is also still a tax benefit available for gifts to non-profits. (Please check with your tax professional to confirm the details of how much of your gifts are deductible.)

We’ve recently come across a number of additional ideas for philanthropic giving that we want to share with you.
donation
A website that I’ve found to provide good information about charities as well as broader topics relating to philanthropy is GivingCompass.org.

Nicholas Kristof, a New York Times columnist and two-time Pulitzer Prize winner, also publishes an annual list of organizations he thinks are making an enormous impact. He profiled several of these organizations in his November 26 piece, “Time for Gifts of Meaning.”

Yet another broad organization/movement that’s been in the news lately is Effective Altruism (see recent stories from The New York Times, “FTX’s Collapse Casts a Pall on a Philanthropy Movement” and “Effective Altruism, on the Defensive,” and The Economist, “What Sam Bankman-Fried’s Downfall Means for Effective Altruism”). EA started in 2011, led by an Oxford professor named William MacAskill. It builds on and updates utilitarianism, which you might remember from reading John Stuart Mill and Jeremy Bentham in college philosophy classes. The update comes in the form of new methods of data analysis that attempt to determine which organizations are currently doing the most good for the most people. In addition to MacAskill, another academic associated with EA is Peter Singer, a philosophy professor at Princeton. An interesting podcast called People I (Mostly) Admire, hosted by Steven Levitt, a University of Chicago economics professor and co-host of Freakonomics, recently featured Singer (10/14/22) and MacAskill (8/19/22). They have provocative takes on, among other topics, animal welfare and long-term thinking (MacAskill calls this “long-termism”). Singer is associated with TheLifeYouCanSave.org, and MacAskill with GiveWell.org.

Effective Altruism has been in the news recently in connection with FTX, the cryptocurrency exchange that filed for bankruptcy in November, and its founder and former CEO, Sam Bankman-Fried, who was arrested in early December on charges related to FTX’s collapse. Bankman-Fried was a disciple of MacAskill, and the largest contributor to Effective Altruism causes. These include global economic development, pandemic preparedness, and, more recently, “AI safety,” which involves safeguarding humanity against potential harm from artificial intelligence technology.

Some of the potentially less savory aspects of Effective Altruism came to light in Bankman-Fried’s downfall. One of these is “earn to give,” in which some EA proponents were encouraged to pursue lucrative careers in finance and technology so that they could give away large amounts to EA causes. Many believe Bankman-Fried took this concept to a dangerous, and fraudulent, extreme. MacAskill lamented the impact on EA: “Sam and FTX had a lot of good will – and some of that good will was the result of association with ideas I have spent my career promoting. If that good will laundered fraud, I am ashamed.” Earn to give sounds reasonable to me in theory but presents an enormous opportunity for backsliding and outright fraud in practice, as Bankman-Fried appears to demonstrate. (Remember, though, that he’s only been charged so far, not convicted of anything specific.)
magic door
Some of Effective Altruism’s other ideas strike me as a little far-fetched. Long-termism, in particular, with its claim that we should give as much consideration to people 1,000 years in the future as we should to people living 1,000 miles away, seems interesting but difficult to pursue in the context of so much current global suffering. On the other hand, this kind of thinking does argue for work to prevent climate change, prepare for future pandemics, and avoid the potential excesses of artificial intelligence, all of which will likely help the living as well as the not-yet-alive. So, despite the recent negative publicity, it appears that EA continues to promote good works around the world.

We hope these resources provide some ideas to help with your giving. Please feel free to send us links to your resources so we can compile additional ideas for 2023 and beyond.

One Step Forward, or the Fragility of Recoveries

Nick Levinson Comments, Life with Money

As occurred in July through mid-August of this year, stock markets around the world have seen significant gains in October and November 2022. The total US stock market rose about 8% in October and 5% in November. International stocks increased 3% in October and 13% in November. Bond prices have also gone up recently, with gains between 1.5% and 4% for November depending on maturity and credit risk. These bond price increases have accompanied substantial declines in interest rates, with the benchmark 10-year Treasury falling from 4.3% in mid-October to 3.7% at the end of November.
headache
What’s been driving these gains?

As always, many factors come into play, but the most significant appear to be the recent declines, albeit modest, in inflation rates around the world. This has encouraged hopes among investors that the US Federal Reserve and other central banks will begin to moderate recent interest rate increases in their attempts to slow inflation.

The big question is whether these gains will persist and mark the beginning of a recovery from the still-significant declines of 2022. Or will they disappear in the face of higher inflation and/or other factors, as they did over the summer?

As you know, PPA doesn’t make predictions about short-term market price movements. There are simply too many moving pieces that we know about, along with a long list of possible factors that we don’t yet know anything about. That’s why we encourage clients to stick with asset allocations appropriate to their long-term financial situations, making changes as situations change, not in response to markets rising or falling over weeks or months.

As always, PPA advisors are available to consult if you have questions or concerns as we go through these challenging, uncertain times together.

Tax Loss Harvesting: Silver Lining in a Down Market

Nick Levinson Life with Money

With stock and bond prices still down significantly for 2022, one opportunity for a “silver lining” comes in the form of tax loss harvesting. This involves selling investments in taxable accounts that have declined in price, thereby “realizing” losses. (Tax loss harvesting doesn’t apply to retirement accounts like 401Ks and IRAs.) These losses can be used to offset gains from sales of capital assets, including investments and real estate. If the losses exceed the gains for a specific year, you can typically deduct up to $3,000 of ordinary income on your tax return for that year. Any losses beyond the offset of gains and the annual deduction for the current year can be “carried forward” indefinitely. It’s a good idea to check with your tax professional before deciding whether, and if so, how much, tax loss harvesting to pursue in a particular year.
tax loss harvesting
If you decide to do some tax loss sales, Park Piedmont Advisors typically recommends reinvesting the sale proceeds in similar investments to maintain the asset allocations we’ve developed with you. (The “wash sale” rule disallows the loss if you buy back into the same investment you sold within 30 days of the sale.) Depending on the amount of the sale proceeds, it might also make sense to re-invest over time, which we often refer to as “dollar cost averaging.”

Please feel free to contact your Park Piedmont advisor to discuss whether tax loss harvesting makes sense for you.

Cryptocurrency and the Financial Perils of Herding

Nate Levinson Digital Assets, Life with Money

In recent weeks, the cryptocurrency industry has dominated financial headlines due to the bankruptcy of FTX, a popular crypto exchange. As an exchange, FTX allowed people to buy, sell, and trade digital currencies.

The collapse of FTX began when reports surfaced about the company’s financial structure and levels of debt, which caused the price of FTX’s own “native currency,” the cryptocurrency issued directly by FTX, to plummet. As a result, hordes of FTX users demanded withdrawals of their money from the exchange. However, it turned out that FTX did not have the funds to cover billions of dollars’ worth of user withdrawals and obligations to creditors, due in large part to misuse of their customers’ money.

FTX’s declaration of bankruptcy sent shockwaves across the crypto and broader financial world. As the value of many cryptocurrencies including Bitcoin and Ethereum subsequently declined, other exchanges struggled to stay afloat, and investors lost billions of dollars.
cryptocurrency
Although FTX’s downfall has been a large blow to the crypto sector, it is not the first sign of struggle for the industry. Back in late 2021, initial reports of high inflation in the US caused concern among many investors about how the economy would react. Bitcoin, which is by far the largest digital currency in the world as measured by market capitalization (the current value per share of a stock or coin multiplied by the number of shares that have been sold in the market), peaked at roughly $68,000 per share in November 2021. The price of Bitcoin then declined by 19% in December 2021 and another 17% in January 2022. Ethereum, the second largest cryptocurrency, also experienced drastic price drops. Over the past year, Bitcoin and Ethereum have each lost approximately 75% of their value as investors have sold off shares en masse.

The huge price declines of many cryptocurrencies over the past year bring to mind the concept of herding. This is the phenomenon in which humans follow “the herd” and mimic the actions of the people around them, based on the assumption that those other people have a full understanding of what they are doing. This is a commonly held bias in many aspects of life but can be particularly perilous in the financial sector when investors buy what they believe other people are investing in without analyzing the investments themselves.

On a large scale, herding can lead to market bubbles, which involve the extreme overvaluation of an asset, and subsequent market crashes when the bubble “bursts” and the price of the asset plummets. For example, herding played a large factor in the “dotcom crash” of the early 2000s, and more recently in the bursting of the crypto bubble in late 2021. The dotcom bubble was driven in large part by the excitement around the popularization of the internet and so-called “internet companies” that provided online shopping, communication services, etc. The development of this new technology led to very high growth and profit expectations for internet company startups. Consequently, professional investors, such as banks and venture capital firms, rushed to get their feet in the door. As more and more money funneled into these companies, their stock prices soared. And as the potential for large price increases became apparent, FOMO (or “fear of missing out”) grew among other professional and individual investors, leading to “panic buying.” However, the craze around the internet and its potential led many professionals to ignore traditional metrics and due diligence practices. So, when worsening economic conditions revealed flaws in several internet companies’ business plans and spending practices, the herd pivoted to “panic selling” and the bubble burst. As a result, many of the new companies, such as WorldCom and Pets.com, went out of business, and many investors, professional and non-professional alike, lost a lot of money.
herding
Herding in the crypto markets was similarly driven by the actions of professional and non-professional investors. Many well-known and highly regarded financial firms such as Sequoia Capital and BlackRock sank billions of dollars into FTX and other crypto-related companies. Additionally, celebrities such as Larry David and Matt Damon appeared in commercials for FTX and Crypto.com, respectively. The FTX commercial invited herding, claiming that the exchange was a “safe and easy way to get into crypto” and urging viewers to “not miss out.” Prior to FTX’s downfall, professional athletes such as Tom Brady and Stephen Curry joined the company as brand ambassadors and promoted the platform. Cade Cunningham, the number one overall pick in the 2021 NBA draft, even went so far as to take a large portion of his signing bonus in Bitcoin via a sponsorship with the crypto lender BlockFi. BlockFi, which had close financial ties to FTX, declared bankruptcy itself earlier this week in the wake of FTX’s collapse. Between all these influences, it’s easy to see how more and more non-professional investors were drawn to crypto.

In the same way that the internet was the exciting new technology of the late 90s and early 2000s, cryptocurrencies and the blockchain have been a large focus of media attention over the past few years due to their increasing popularity and potential applications. Simply put, blockchain technology allows for secure, decentralized, and fully transparent digital recordkeeping. As one of its most widely known uses, blockchain supports the production and trading of cryptocurrencies. From the excessive optimism with a new technology, to investors jumping on the bandwagon to not miss out on the potentially massive growth of a young industry, to the eventual mass selloff, there are many parallels between the dotcom crash and the movement of crypto prices over the past year. However, it is important to remember that some of the internet startups of the late 90s and early 2000s, such as Cisco and Amazon, survived and have since flourished. Similarly, many cryptocurrencies have not completely collapsed (Bitcoin is still worth around $16,000 per share) and may well survive and grow over time.

Crypto is a relatively young industry, and the bankruptcy of FTX illustrates that actions in one part of the market can have significant ripple effects across the rest the industry. No one knows the future of cryptocurrency or blockchain technology, but for now it remains an unregulated and highly volatile market. Because of this, any crypto holdings should only comprise a portion (and a small portion at that for most investors) of a well-diversified portfolio, to mitigate the risk of extreme price swings. There is no fundamental problem with taking large risks in the market. As always, the decision on whether to shift any portion of one’s portfolio into crypto, or any other highly speculative asset, is dependent on one’s goals, time horizon, and risk tolerance.

Finally, as humans, we are all subject to behavioral biases such as herding. Whether it is the CEO of a financial institution or a person with no investing experience at all, no one is immune. However, becoming aware of these biases can allow for improved reflection on one’s own actions and motivations. When media buzz swirls around an exciting new stock, coin, or alternative investment, it is important to take a step back and evaluate whether it truly aligns with your risk tolerance and goals.

Please feel free to contact your Park Piedmont advisor for any further information or discussion.

A Thanksgiving Walk in the Woods

Tom Levinson Life with Money

A few days before Thanksgiving, motivated by above-freezing weather and a late-afternoon urge for outdoor time, I bundled up and biked a couple miles to a favorite woodsy hiking trail.

Often when I walk this trail it is empty of other people, and so as I pedaled, I presumed the same would be true. But as I turned into the postage stamp parking area, a Nissan Sentra had gotten there before me.

It wasn’t long after I shed my bike and started my walk that a thought emerged: it’s actually pretty desolate out here.

Now, don’t get the wrong idea: I’m not saying something was definitely going to happen. But there was a possibility – remote, sure, but in my “city-kid” brain, non-trivial – that something could occur. Who else was out here with me? It probably wasn’t “Jason” – I don’t know that he would drive a Sentra – or anybody super scary, but … what if it were?

I had a thought, and the thought tinted my walk.

I laughed it off – mostly! – and continued walking through the forest of spindly, skeletal trees. Nailed to one was a sign acknowledging the generosity of two families who’d donated this land for perpetual conservation, while also preserving the trail as a public easement. The last part of the sign read: “Hunting by landowner’s written permission only. Hunter orange is advised during firearm season for deer.”

I looked down. My outfit, marked by a conspicuous lack of orange. And I had no clue when firearm season for deer started and ended.

Was it safe to keep walking?

• • •

In our contemporary culture, we are trained to be attentive – hyper-attentive – to things that might happen. The news cycle bombards us with mayhem and conflict. The worst that can be done to or befall humans.

That’s so often the case in the financial and investing news scape, as well. Headlines blare about risk and recession, declines and volatility. Lurking around every corner, economic catastrophe. There’s so much to be frightened of – and some of it may come to pass.

But much of it doesn’t.
woman looking out window
Sometimes our worst fears are not realized. Sometimes they stay figments of our imagination. I’m grateful for that.

I’m grateful to take a walk in the woods. This time last year, felled by a hip ailment, I was confined to a wheelchair that surely couldn’t make it over roots and leaf piles.

I’m glad my face is uncovered and grateful that many of us, including friends and colleagues, are able to travel to see their families for the first time in years.

I’m grateful for a bike whose brakes work, a road without too many potholes, and the crunch of leaves under my feet.

Lest we forget: I’m also grateful that the Nissan belonged to an older couple. When I met them along the trail, they were studiously focused on a single bud on a winter tree. They were improvising how to design an optimally dark background for an iPhone photo of the bud. In that great big forest, the object of their awestruck attention was the size of a raisin.

At this time, I am grateful for the ordinary. The everyday.

• • •
Happy Thanksgiving to our Park Piedmont clients and friends. We are grateful for the opportunity to walk alongside you as years go by.