Bethlehem, PA (PRWEB) May 28, 2017

As Quadrant Private Wealth (“Quadrant”) celebrates their fifth anniversary, they are pleased to announce the addition of Antonio (“Tony”) X. Vidal to their team as a Private Wealth Advisor. To ensure that they can continue to grow their business while delivering the same level of service that their clients have come to expect, the Quadrant team is investing in talented individuals to help them achieve those goals. Vidal’s years of experience and deep expertise in wealth management, as well as his knowledge of the industry in New York and globally will be an asset to Quadrant.

Vidal previously served as Chief Financial Officer and Chief Compliance Officer of Compass Group, LLC, New York from 2007-2018. Prior to Compass, he served as Principal and Treasurer of Financorp Group International in New York from 1994-2006.  Prior to Financorp, he worked in various capacities in financial services, including several trading and management positions for HSBC, Citibank, Bank of America and JP Morgan Chase.

“It is our priority to grow our team with high character, accomplished individuals who allow us to continue to deliver differentiated and exceptional services.   We’re excited to welcome Tony to the Quadrant family and we look forward to incorporating his additive strengths and positive contributions for the benefit of our clients,” said Jason Cort, Founding Partner and President at Quadrant.

ABOUT QUADRANT PRIVATE WEALTH:
Quadrant Private Wealth is an independent Registered Investment Advisor located in Bethlehem, PA. Quadrant is a firm of seasoned and innovative private wealth advisors and a knowledgeable support staff with over 100 years of collective investment experience. Quadrant offers a complete spectrum of investment and wealth structuring strategies geared towards preserving and growing wealth. For more information, go to http://www.quadrantprivatewealth.com.

 

Jason Cort, President of Quadrant Private Wealth, joins Mindy Diamond on the Mindy Diamond on Independence podcast. Listen below to learn how the QPW team made the leap from Merrill Lynch to independence back in 2014.

The original article can be found here: https://www.diamond-consultants.com/multi-generational-indy-breakaway-story/

January 5, 2018

To our Clients, Partners and Friends:

It is that time of year when we usually try to do two things at the same time. We look back over our shoulder and ask: what just happened?  Sometimes we contemplate about what we did, and perhaps what we should have done differently.  Finally, after we come to the realization that there is nothing we can do about it, we begin to look forward, set some goals, and sometimes, make promises.

Allow me to extend to you from all of us here at Quadrant Private Wealth our wishes for a healthy and “Happy New Year.” It is difficult to comprehend that yet another year has passed us by.  In all candor, it is difficult for me to come to the realization that at some time this year, I will begin my 48th year in the financial advisory sector.  One might have thought I would have learned more during the previous 47 years.  The truth is, this is a humbling profession.  For some reason things don’t always work out as we had planned.

What a year 2017 turned out to be! The stock market had positive returns every single month.  Not only that, but as of today, we have had 381 trading days without at the very least a 5% pullback.  If this continues until mid-February, we will have the longest such streak since 1928.  In fact, according to an analyst upon whom we rely, 2017 represents the lowest year of adversity in over 100 years.  What could possibly go wrong?

In the bond markets, interest rates were predicted to begin going up. Well, partially that is true.  The Federal Reserve did raise short-term interest rates multiple times, but those are, and I am calling them, “manufactured moves.”  In the actual market place (i.e., those rates which are determined by buyers and sellers), interest rates have been surprisingly stable.

What else has taken place? For one, our clients have rewarded us with loyalty as reflected by assets under management (AUM) growth to an all-time high.  We are very pleased that many of you have now been clients for decades.  Several of you are approaching 40 years, with many more at 30, and an astounding number in the 20-year range.  Yes, we also have teenagers, but we are equally grateful for those who are in their infancy as well.  To you all, we promise to continue to work at improving upon all components of our relationship with you.  As stated last year, we take nothing for granted.

Some other significant events transpired this year. Quadrant Private Wealth finally moved into what we hope to be our permanent home.  If you have not yet had a chance to do so, please come and visit.  We are quite proud of it.

Speaking of significant events, how about a few hurricanes – Harvey, Irma and Marie? Something else that blew in with the hurricanes was Bitcoin, which is now a current part of our terminology along with its companion phrases of “blockchain” and “cryptocurrency.”  Of course, I continue to be challenged in trying to get a grasp on any of them.  By the way, something else does not make sense to me: tattoos, body piercings and negative long-term interest rates.  All of the above appear to have gone beyond their “past due” dates, but perhaps, I must just be showing my age.

As we look to 2018, we know there are other potential events of significance: NoKo, Iran and the continuing dysfunction in our federal government. Any one of these has the potential to upset the apple cart.  Of course, there is the other category…something else.

In summary, it has been a great year. Can it continue?  Possibly, and certainly, we hope so.  Although equities are expensive by historical measures, there is no reason why they cannot become more so.  Momentum is a powerful phenomenon!  However, we will not lose our perspective of managing for the “upside” while trying to protect against the “downside” risks that will always ride “shotgun” in any investment environment.  In fact, because of the recent “upside” strength, we remain cautious.

Finally, as part of the review process, I would like to acknowledge that several of you have celebrated significant milestones this year. Although we may cringe at these accomplishments, it is better than the alternative.   I am also proud to acknowledge that Claire, my wife, and I celebrated our 50th wedding anniversary.  Yes, she is a saint.  Another anniversary that we will also be recognizing soon is the fourth year anniversary of the founding of Quadrant Private Wealth.   More importantly, 2018 will represent another significant milestone.  The cumulative experience of our “younger” financial advisors will exceed 52 years, obviously exceeding my own.  That is important because that experience is critical in making the correct decisions for our clients.  So our final milestone will be an excess of a cumulative 100 years of investment guidance.

Allow me to leave you with some lyrics from of one of my favorite country western songs by David Lee Murphy called “Dust on the Bottle.”

There might be a little dust on the bottle

But don’t let it fool ya about what’s inside

There might be a little dust on the bottle

It’s one of those things that gets sweeter with time

I have always thought about that as a commentary on some of our “aging” friends, and, of course, friendships. It could also pertain to the investment markets themselves.  Records are records for a reason.  Therefore, when a “record level” is reached, it is not the beginning but rather an indication of the maturity of the cycle.

 

Stay tuned. We promise to keep you informed.

 

Sincerely,

Herman L. Rij, CIMA®

Founding Partner, Private Wealth Advisor

Chairman

Alice: “Where should I go?”

The Cheshire Cat: “That depends on where you want to end up.”

What does this have to do with investing? Many investors are asking where they should go today.

Global central bank reactions to the 2008 financial crisis have led to elevated levels in traditional stock and bond markets. By some measures, stock valuations are in the top 1 percent of where they have been historically.

Bond yields are at historic lows and negative in many parts of the world.

The good news is that some investors made a lot of money since markets bottomed in 2009. How much you made likely depended on your tolerance for risk and your asset allocation (or split between stocks and bonds such as 60 percent stocks/40 percent bonds, which is often considered a balanced portfolio).

The bad news is that when you start from a place of high valuations such as today’s, future returns will almost certainly be less than the recent past. Even worse, some studies suggest stocks and bonds both could have returns close to zero the next five to 10 years.

In that environment, your asset allocation to traditional investments doesn’t matter. Progress will be difficult.

Optimists might be tempted to dismiss these words of caution.

However, the job of an adviser is not to predict the future but rather to prepare to make the necessary progress regardless of whether the optimistic bulls or pessimistic bears are proven correct over a period of time.

OPPORTUNITY KNOCKS

So, back to the Cheshire Cat’s answer.

If you want to risk making no meaningful progress over the coming years, consider sticking with portfolios dominated by stocks and bonds and manage volatility with an appropriate asset allocation.

Or, if you are willing to try something new in the calculated pursuit of progress, jump into the rabbit hole, escape the traditional and explore the world of alternative investments.

IT’S COMPLICATED

Alternative investments tend to fall into a few categories such as private equity, hedge funds, managed futures, real estate and natural resources.

They are not guaranteed to make money. They can be illiquid, meaning you can’t always immediately get back your money.

They can have high internal fees, and they can complicate a tax return.

Some might even say this advice sounds like it’s from the Mad Hatter.

OPPORTUNITY TO BE TACTICAL

Yet, alternative investments tend to have a few characteristics that are really desirable, especially if the future is as challenging as some project.

Alternative investments tend to generate acceptable returns regardless of the direction of traditional stock or bond markets. They also frequently exhibit less volatility or risk than traditional assets.

There are a few reasons why these compelling characteristics exist, including:

< The illiquidity premium that investors demand for limited access to capital.

< Alternative investments often are backed by real, tangible things.

< The managers’ ability to be tactical and make multidirectional bets.

Of course, there is more to it than that. But if making consistent returns and sleeping well at night are interesting to you, continue down the rabbit hole.

STRONG RESULTS

One of the most successful investing track records of the last 20 years belongs to the largest endowment in the world, the $36 billion Harvard University endowment.

At the end of fiscal year 2016, Harvard’s asset allocation was 29 percent stocks, 13 percent bonds and 58 percent alternative investments.

In a March study by private equity pioneer KKR of New York, it was found that ultra-high net worth investors ($30 million-plus of investable assets) had portfolios that were 29 percent stocks, 25 percent bonds/cash and 46 percent alternative investments.

These allocations to alternative investments are not new and have been developed and refined for decades.

NOW OPEN TO THE AVERAGE INVESTOR

Ultra-high net worth investors and institutions such as Harvard used to have an advantage over the average investor.

Access to certain alternative investments used to be limited to those who could write a $5 million check. Fortunately, minimums have been falling and access improving for the typical investor.

An investor now can access some of the world’s most accomplished managers for as little as $50,000 if certain reasonable net worth or income requirements are met.

There are now alternative investment mutual funds with minimums of $1,000 and no meaningful suitability requirements.

WORTH EXPLORING

There is no “right” asset allocation, as every portfolio should be determined after considering risk tolerance, liquidity needs, growth needs and tax status.

Furthermore, there is no “right” allocation to alternative investments.

It’s doubtful that a 58 percent alternative investment allocation such as Harvard’s is appropriate for an individual.

But in most circumstances, a 10 percent to 25 percent diversified alternative investment allocation is worth exploring, regardless of one’s bullish or bearish feelings toward traditional stocks or bonds.

Jason Cort of Center Valley is president and a founding partner of Quadrant Private Wealth, Bethlehem. His specialties include investment strategies designed to mitigate risk without sacrificing return, as well as liability management and estate planning services. He can be reached at jcort@quadrantprivatewealth.com or 610-849-2740.

Tuesday, June 27, 2017 by Dana Grubb Special to the Bethlehem Press in Local News

The investment by Quadrant Private Wealth in the historic property at 2 West Market Street has paid off handsomely. The structure, which was constructed in the 1840s by immigrant Ernst Lehman, has been renovated to allow Quadrant to relocate its offices from One West Broad Street.

According to earlier documentation about the site’s history, trombones manufactured for the Moravian Trombone Choir were once manufactured by Ernst Lehman and his son Bernard in the clapboard building behind the residence.

At an open house on June 4, area political leaders, neighbors, clients and friends were able to view the restoration and renovations for the first time and they came away impressed.

Visitors included three of the most recent inhabitants, Mary Schadt and two of her four children, John Schadt and Susan Glemser. Dr. Daniel Schadt (now deceased) had moved his family into the residence in 1976 and it was sold to Quadrant in 2014. “It’s lovely and a very tasteful update,” said John. “It’s fabulous and we are thrilled with it,” added Susan.

The update retained many of the historic features throughout the interior including hardwood flooring, light fixtures, stained glass windows, grand stairway and railings, and pocket closets. An interior wall in what used to be the master bedroom and bath suite was removed to create two offices. A modern fire escape has also been added to meet City codes.

Quadrant founding partner and chairman Herman Rij called the project a “learning experience.” “The Schadt’s maintained the property beautifully,” said Rij who noted that “there were many surprises which had not been taken into consideration at the project’s onset.” One of those was the interior walls being constructed of brick and the challenge that presented for running updated utility lines throughout the structure.

Exterior painting remains to be completed, a project that Rij says should be completed soon by Stirling Painting. In addition, the garage and New Street store fronts located on the property will also need attention in an additional phase of work.

Rij said that despite the challenges of completing the project, “Had we to do it all over again, we would gladly do so because we believe we have saved this building with historic roots for the community and (Bethlehem) Historic District.

Allied Building Corporation performed the construction and colorist Joyce Danko developed the interior painting scheme.

 

Open House Scheduled During Historic Bethlehem House Tour

Bethlehem, PA — Quadrant Private Wealth will cap off the Historic Bethlehem Partnership’s annual house tour this year with an open house at its own new headquarters in the historic Lehman House at 2 N. Market Street in the city.

Quadrant is also proud to announce that it will serve as Historic Bethlehem’s Museums & Sites Premier Sponsor of the “Annual Rooms to View House Tour and Preview Soiree” for the next five years. The Lehman House at 2 W. Market St. will be part of the tour on Saturday, June 3 and an Open House for clients and friends will be held on Sunday, June 4.

Bethlehem Mayor Robert Donchez, state Sen. Lisa Boscola, state Rep. Steve Samuelson, members of Bethlehem City Council and other dignitaries have been invited to attend the ribbon-cutting at 3 pm on Sunday.

Located across Market Street from the prestigious Moravian Academy, the Lehman House holds the distinction of being the only property in Bethlehem zoned for both residential and commercial use. Known as the Bernard E. Lehman House, the home was built by immigrant Ernst Lehman in the 1840s, and the property also housed Lehman’s brass works, the first of its kind in the Lehigh Valley.

“We believe this is a tremendous opportunity for Quadrant Private Wealth to retain its roots in Bethlehem and continue to be a contributing member of the community,” said Quadrant Founding Partner and Chairman Herman L. Rij. “The Lehman Home is a unique property with a wonderful history, and we believe that it will provide our company with a strong foundation and inspire us to grow and prosper as we help our clients do the same.”

Quadrant has been based at 1 W. Broad St. for the past three years.

Quadrant is working to restore and document the history of the Lehman House and contractors have already found a letter from 1906, a newspaper from 1902 and writing on the wall from that same period when they removed the wallpaper. Behind the home is a clapboard building where Ernst Lehman and his son, Bernard, once produced trombones for the Bethlehem Trombone Choir, according to real estate marketing documents from past sale offers.

The Lehmans’ Lehigh Valley Brass Works moved from the site in 1863, according to published histories, and relocated to the south side of the Lehigh River where it became the Bethlehem Foundry and Machine Shop.

ABOUT QUADRANT:
Quadrant Private Wealth is an independent Registered Investment Advisor located in Bethlehem, PA. Quadrant is a firm of seasoned and innovative private wealth advisors and a knowledgeable support staff with over 100 years of collective investment experience. Quadrant offers a complete spectrum of investment and wealth structuring strategies geared towards preserving and growing wealth. For more information, go to http://www.quadrantprivatewealth.com.

May 2, 2017

To our Clients, Partners and Friends-

I want to wish you a “Happy New Year” from everyone at the Quadrant family of companies!

It would not surprise me if I created a little confusion for you with that statement. First of all, you may wonder whether you are a Client, a Partner, or a Friend!  I am happy to say that in our minds, the three are not mutually exclusive, and in fact, frequently overlap. Second, no…I am not just getting around to finally mailing a letter that I wrote four months ago…

Today represents the 3rd Anniversary of the founding of Quadrant Private Wealth! (Happy New Year!)  If that surprises you, well time does fly.  It surprises us, too! On the other hand, when we look back at all that has been accomplished, sometimes it is hard to believe that we have been able to pack it all in a mere three years.  Allow me to summarize: it has been a learning experience.  The old saying “you don’t know what you don’t know” clearly has been validated.  Being an investment advisor does not equate with knowing how to run a business.  We have learned so much, and will continue to do so.  One of the best definitions of experience that I have come across is from Ambrose Bierce:

experience: noun, ex-pe-ri-ence, /ik-‘sper-e-en(t)s\: that occasion where the final exam comes first, and the lesson follows.

Since this is a “New Year” letter, we would like to share with you what has transpired over the last year, as well as some really exciting things to which we are looking forward in the coming year.

Let’s begin by looking back. Our firm has had a great year.  Our assets under management have grown considerably thanks to you.  We will never take for granted the confidence that you have placed in us.  Our goal is to continually earn that confidence, and not just to maintain it, but to improve upon our deliverables.

In order to be able to do so, we need quality personnel. This year we added two more such people.

Nicole Schoenen is an addition to Quadrant Business Advisory Services and to Quadrant Peer Executive Groups. Her design, marketing, and organizational talents far exceed her years.  Unfortunately, I just discovered that until three weeks ago, she wondered who the “old, cute guy” was.  Needless to say, my reaction was less than appropriate.  My associates assured me she was only kidding.  She really did not consider me to be “cute”.

Frank Lawler also joined us in January as Director of Business Development for our family of companies. We got to know Frank first as a client.  After having a chance to work with him and get to know him, we realized how high quality of an individual he is.  Although we were not necessarily looking to add more staff, when one finds a very bright and personable individual with investment banking experience in the Lehigh Valley, who’s also a Lehigh graduate, one must “draft that player.”  We welcome Frank. I still am unsettled about that “old guy” commentary from Nicole.

Over the next two months, there is much “happening”. First and foremost, Quadrant Private Wealth will be vacating our wonderful home on the 11th floor of 1 West Broad Street.  Our hosts, Sruly Rosenbaum and Madison Executive Center, have been very accommodating to our growth needs over the past three years.  However, we are finally relocating to 2 West Market Street, our new World Headquarters.  That move will occur at month end.  You are all invited to our open house from 2-5 pm on Sunday, June 4th.  A separate invitation will be forthcoming.

Additionally, as part of our Quadrant Cares theme “Investing in the Community”, we are proud to announce that our firm will serve as the Premiere Sponsor of Historic Bethlehem Partnership’s Annual Rooms to View House Tour and Preview Soiree that takes place that same weekend (June 2nd and 3rd).  In fact, our new World Headquarters is also on the tour this year!  Regrettably, only the inside of the project will be completed.  Another learning experience: Murphy’s Law is alive and well.  The outside of the house (painting, sidewalks, etc.) will not be completed until August.  Despite that, the good folks at Historic Bethlehem Partnership thought there would be enough interest regarding the inside of the house to include it in this year’s tour.

Later in June, Quadrant Private Wealth will be the Exclusive Sponsor for the Garden of Hope, an event held annually by the Cancer Support Community of Greater Lehigh Valley. As you may know, Claire, my wife, was one of the founding members of that organization, and one of our daughters, Becky Flynn, is currently a board member.  It has done so much good for so many people for more than a decade, serving 250 participants per month, supporting patients and families in their fight against cancer.

Quadrant Private Wealth will be involved with yet another major community effort that will be unveiled on June 1st.  The Friends of the Bethlehem Mounted Police will hold a ribbon cutting for their “brand, spanking new, gorgeous barn” which has become the new home of Pharaoh, Asa, Gray and George, along with their outstanding police “parents”, John, Mike, Jason and Erik.

It is our belief at Quadrant, that in today’s world one cannot give enough support to our local police. Quadrant will be identified as the naming sponsor of the barn.  We are quite proud of the Quadrant Private Wealth Stable Facility.

We at Quadrant are all grateful for the opportunity to be part of Bethlehem and the broader Lehigh Valley community. Our commitment is reflected in our Quadrant Cares theme: “Investing in the Community” is what we do.  It is how we make a living, and it is how we give back.

A resounding “Thank You” to our Clients, Partners and Friends! We want to reinforce how much we appreciate your relationship with our firm and with our people.  So much has transpired of which we are proud, but we could accomplish none of it without all of you…from Bethlehem to Chicago to California, Florida and New York, and everywhere in between. A collective “Happy New Year” to Everyone!

Sincerely,

 

Herman L. Rij, CIMA®

Founding Partner, Private Wealth Advisor

Chairman

May 15, 2017

 

The basic market trend continued in April, with equity markets rising marginally across the globe. The prospect of the French elections leading to a “Frexit”, and ultimately the death of the Euro and the economic basis of the European Union, was significantly decreased after the first round of the French elections saw the moderate, pro-EU candidate garner the most support.  That event alone created a relief rally that propelled global markets into positive territory for the month.  In April, the S&P 500 returned 1.03%, the Dow gained 1.45%, and the tech heavy NASDAQ composite returned 0.93%.  Internationally, developed markets gained 2.27%, and emerging markets gained 2.02%.

The Dollar continued its weakness on the news, though it continues to trade in a relatively narrow range. Fixed income instruments continued to trade in a narrow range as well, with the yield curve persistently flattening.  For the month, the 2-year Treasury note fell 1 basis point while the 10-year fell nearly 11 basis points.  Gold gained slightly, rising 1.37%, while silver, a measure of both precious and industrial metals, fell 5.75%.  Oil continued to struggle under increased production from US shale producers, and closed the month at $49.77 from $51.07 (down 2.55%).

Overall, it was a relatively quiet month except for a few exciting days around the aforementioned preliminary French elections. Although the market reacted positively to the results, we think that it provides yet another example of the myopic view of the world, and of the equity market in particular, that has persisted for several years.  While it is true that some of the candidates with more extreme anti-EU views did not make the final cut, the candidates from the 2 main political parties, those that dominate the rest of French politics, were eliminated as well. The choice between a “reformed” Socialist, who is pro-EU, and a “reformed” Ultra-Far-Rightist, who is anti-EU, in Europe’s second biggest economy doesn’t seem like much of a choice to us.  While the pro-EU candidate won, we believe that regardless of who won, it is going to be incredibly difficult for all the parties to work together to govern and manage a feckless economy.  It is possible that the outcome of the French elections had the potential to have some impact in the short term, and a massively negative impact at worst, the global economy is going to have to deal with a new rise of anti-globalism, xenophobia, and nationalism.

Domestically, the market continues to bet on the Trump administration and its potential for pro-growth, free market policies passing into law. The Trump administration has faced strong headwinds in its first four months and the latest proposal, fitting for the month of April, is a sweeping overhaul of the tax structure.  Given the short, but contentious, tenure of the Trump Presidency, and the Democrats’ seeming unwillingness to compromise so far, we believe that the tax proposal is very likely to face hefty opposition and challenges as well.  Nevertheless, the sentiment that this would potentially be positive for the market caused an immediate bump in the equity market.  While in general, we believe that lower taxes in a simpler form with more competitive corporate tax rates are all positive for the economy, and therefore the equity market, we simply have little confidence that any of the proposal will pass easily in what is its current form.

In short, we haven’t seen anything that would inspire us to change our conservative view of the markets. We do believe that fixed income presents a better opportunity as a safe harbor and as a place to “park” investable capital, certainly relative to the equity markets.

Market bubbles have a tendency to persist longer and grow larger than any rational person would guess. Markets may continue to squeeze out upside from today’s elevated levels.  We believe that valuations, at current levels, leave very little margin for error.  As “hope” as an investment strategy for the masses inevitably gives way to the reality of political gridlock, frothy valuations, and little substantive change from the political or economic status quo, the equity market will likely reflect these new realities at lower levels over time.  There are prudent strategies that we continue to deploy, to preserve capital and grind out growth, and we believe that these are as important now as ever, if not more so.

As always, please do not hesitate to call if you have any questions or comments.

 

Sincerely,

The Quadrant Team

If you were paying attention to our last article…

Interest rates are near a 5,000 year low. Is that good news? The answer, of course, is: yes, maybe, and no. Is it bad news? Again, yes, maybe, and no. How can that be?

Well, most of us are savers, investors, or borrowers. Depending upon what we have most of, savings, investments, or debts, the answer is each of the above and maybe more than one of the answers in each case.

Savers, if you have been disappointed and disillusioned with your returns for the last ten years, then maybe things will begin to improve for you. Do you want the good news or bad news first? Good news: your earnings may increase beginning soon. The bad news is you won’t notice it very much because any rate increases will be minimal for the foreseeable future, and banks are notoriously slow in passing along those rewards to customers. The chances are better that you will get a new toaster (remember those days?) from the bank before you get a meaningful increase in return.

Borrowers, (want the good news or bad news?) you will definitely see those increases first. If you have not refinanced your loans and locked in these historic low rates, you are rapidly running out of time. Yes, they are already higher than last summer, but are likely to go much higher. In fact, the longer you can make your loan, probably the better. If you have any floating rate loans….do not pass go but run immediately to your friendly banker and convert that loan to a fixed rate loan. Yes, you will probably have to pay more than your short term alternative in the short run. However, in the long run, you will be glad you did. Why? By the time your short term loans “re-set” and you decide to lock in a longer term loan, those rates will also be higher. If you ever owned a dog and wondered what it felt like chasing its tail, you will find out. Worse, you will also be frustrated in having missed an opportunity that may not present itself for decades, unless we have a depression or recession.

That leaves investors. Will they be happier? Yes, maybe, and no. That depends, as always, on the types of fixed income investments that they own. This is where the GAG REFLEX starts to kick in. Here we must start getting more technical and begin to analyze the investment alternatives …which may be less pleasant than experiencing a root canal without anesthesia.

One of the truisms of investing is that risk is usually a function of reward. You may have heard that there is no such thing as a free lunch. In the fixed income markets, there is usually something known as a “positively sloped yield curve.” In lay persons’ terms, the further one goes out in time, the greater the return. However, the further one goes out in time, obviously the greater uncertainty one assumes. From the memory bank, remember when 1 year CDs paid 1%, 2 year CDs paid 2% and 5 year CDS paid 3%? That was a positively sloped yield curve. What if you could buy a 5 year CD or Treasury Bond that paid 5% or even a ten year bond that paid 7%? Why would one not make that investment today? First of all, those investments do not exist. But if they did, what would you do?

Answer: most people would opt for the higher return. Why not? What could be wrong with that? Well, first of all….life happens. We know that 5 years, and certainly ten years, is a long period of time. Over that time frame, your conditions may alter and you may need to access your investment. Of course, you may have alternatives to come up with needed funds from other sources. But what if those funds are invested in Real Estate, or the Stock Markets and they are not doing well? Has that ever happened before? As a result, your “safe money” may be in that ten year bond and the only logical alternative (i.e. the least painful alternative to pursue) to access. How bad could it be?  Answer: that depends upon how much interest rates have moved up. Remember, we are at or near historic lows in interest rates which means the path of least resistance is UP.  Bond prices and interest rates are inversely related. Lay terms again: they move in opposite directions. How much? That depends upon how much interest rates increase and from what starting point. The further out on the yield curve, the greater the volatility.

Well, you may be asking yourself, “What if I don’t invest in bonds per se, but invest in mutual funds or ETFs (exchanged traded funds)?” If it walks like a duck, squawks like a duck…. then I think you get the point. It will act the same way. If mutual funds (bond mutual funds) and ETFs are invested in ducks, I mean bonds, then they will act exactly the same. In fact, they could even perform worse.

For example: assume one invested in a ten year bond today and interest rates only increased 100 basis points (i.e. 1%) over the next two years. What would be the value of that bond as an 8 year investment at that time? I know, this is hypothetical. However, although moves of that magnitude do not occur frequently, they did move a greater amount than that just last summer from July to November.  The ten year Treasury Bond yield moved from 1.36% to 2.65%, an increase of 129 basis points (bps). It is now at 2.52%.  However, assume that 100 bps move took place over a two year period. The value of that bond would decrease to 93.074 from 100. What that means is that you would have lost more funds than you earned over that time period. (You earned 2.52% for two years which equals 5.04% in yield, but lost 6.93% in price.) If the rate increase was greater or took less time to do so, the results would mean greater losses.

What if rates went up another 1% the next year making it only a seven year bond to maturity, what would it be worth then? By then, your seven year bond would only be worth 88.104. Again, your earnings would have been far outweighed by your loss in value. By the way, as stated in the above examples, the longer the maturity, the greater will be the loss. Many investors own bond funds with longer maturities than above but are just not aware of what it is in which they have invested. The math behind the 30 year Treasury would make you more than just gag. Hello, Ralph?

However, the point to this article is to follow up on the article of March 6, 2017. Many investors are either worried about their investment alternatives and merely cannot afford the risk that today’s high market valuations represent, or are oblivious to them. Yet they do need some return beyond what the traditional short term alternatives currently provide.   In a word: NADA! As a result, they may be investing in only that which is left; bonds. However, as you can see, bonds today are not without risk……unless you believe interest rates are either not going up or maybe even going down.

If so, please call. We have a certain bridge in Brooklyn that we can obtain for you at a very, very good price.

Rather than providing additional examples behind the math in this article, should any one care to have more specifics, please contact our office and we will provide those examples based upon various scenarios. Even I am starting to gag with all of this math.

By HERMAN RIJ Special for Lehigh Valley Business, April 17, 2017

Herman Rij , Founding Partner of Quadrant Private Wealth, Private Wealth Advisor, in 2014 and has over 46 years of industry experience   He holds the Certified Investment Management Analyst ® (CIMA®) designation  .  He has been named as one of Barron’s “Top 1000 Financial Advisors in America” in 2009, 2010, 2011, 2012, 2013 and 2014 and in Registered Rep.’s “Top 100 Wirehouse Advisors in America” in 2009.   He earned an MBA in Finance from Lehigh University and a Bachelor’s degree from Albright College.   

 

 

Yes, I know this is a long title and I will try to explain. What can I really tell you?

I have been in the investment advisory field for 47 years. Not only have I never witnessed an investment environment like this, not a person currently alive has ever witnessed what we are living through.  A good friend of mine once warned: “Never say never and always avoid always.”

As you can see, I did not pay attention to him. Strike One!  Having made such a bold statement, how do I substantiate it?  Yes, we have had markets which may be overvalued.  (I recently read that over all investment periods, 95% of them were at valuations that are lower than we are currently witnessing.)

Can stocks become more expensive? Of course!  Bob Farrell, former Chief Technical Strategist at Merrill Lynch, and one of the industry’s most respected analysts, once wrote of Ten Market Rules to Remember that every investor should know.  His Rule #4: Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.  Translation:  Even though a hot group of markets will ultimately revert back to the mean (i.e. average valuation) a strong trend can last for a long time.  Once this trend ends, however, the correction tends to be sharp.

Ok. So, maybe the market can go up, and perhaps by a lot.  Since we are in the upper 5th percentile, is it a risk you are willing, or can afford, to take?

Then why is the market so high, and why are so many investors increasingly allocating more resources to it? Answer: TINA (i.e. There Is No Alternative.)  Let’s examine the other alternatives.  Ordinarily one might consider savings accounts, money market accounts, etc.  REALLY?  How excited have you been with your .5% (that is ½ of 1%) in a money market account, bank account, or brokerage account for the past five years?  Yes, if you searched hard and took some “risk,” perhaps you might have “eeked out” 1 – 1 ¼% return over that time period. I bet that really helped!  The Fed indicated that it IS going to be raising short-term interest rates, and may do so three more times this year.  How much have you noticed with that gargantuan increase of ¼ of 1% recently.  By the way, that represented an almost 100% increase from where it had been previously.  Sure, they may do so three more times this year.  But, an investor would really need a lot of money before those increases amount to a recognizable sum.

Math Class: If you have $100,000 invested, a ¼% increase will provide you with an extra $250 per year.  $1,000,000 will provide you with an additional $2,500.  $5,000,000 will translate to $12,500.  Now we are talking!  However, I must ask, if you have $5 or $10 million, why are you getting excited about an additional $12,500 or $25,000 per year?

Of course, I have yet to cover another obvious alternative: bonds. Oops!  I should point out that we are currently at a 5000 year low in interest rates.  That is NOT a misprint.  There are many places in the world where interest rates are below zero.  (Not nada, but negative!)  Investors in those countries are willing to invest their money and get back less than they invested…in some case out to ten years.

Math class again! As interest rates rise, bond prices go down.  And, the longer time period in which you have invested, the greater the prices of the investments will fall.

What else should (could) we look at? Yes – forgot about that.  Real Estate prices never fall, do they?  Well, maybe in 2007, 2008, 2009, 2010, 2011, etc.  But, that probably can’t happen again.  Can it?

If you want to be more exotic, there are currencies, commodities, hedge funds and such. In fact, many investors use all of these vehicles for diversification purposes.  You know, diversifying means to spread the risk over many different areas so if one goes down, perhaps the other will go up by more and you will come out just fine.

Here’s that OOPS again. In 2000-2003 and 2007-2009 when those stock markets collapsed, guess what?  Currencies, commodities and hedge funds all went down as well.  Not as much perhaps, but meaningfully, nonetheless.  The principle behind diversification is based on the concept of non-correlation.  What investors discovered to their dismay was that in those periods, all of a sudden everything correlated – rather than non-correlated.

So, let’s get back to the title: Investing in the Land of or During the Time of Oz.

Our Federal Reserve (The Fed), the European Central Bank, and the Bank of Japan, just to name a few, have all been engaged in trying to stimulate their respective economies by flooding them with liquidity. (Flooding the economies with money!) Their hope was that by driving interest rates down, money would become so cheap (i.e. easily available) that rather than saving it and get nothing in return, investors would spend it!  Or, because it was so inexpensive (cheap!) these investors would borrow it (this is cheap money) and spend it, thus creating economic activity.

Does anyone see a potential flaw in this? Spend instead of save.  Hypothetically, one will be a good soldier and spend one’s savings.  If one does, what will they rely upon when they choose or need to retire?  Strike two?

What if we chose to borrow and spend? Where does one develop the resources to pay off the loans that have been incurred?  Strike three?

Finally, remember TINA? What if those savings are not spent, but invested.  If OZ has encouraged the saver to invest during a time period when market valuations are in the top 5th percentile, what happens if something goes wrong and the markets sell off a lot?  Game over!

Unfortunately, have you heard about the “best laid plans of mice and men?”  It just has not worked out.  Example:  The US Economy has not had a single year of 3% GDP growth during the last ten years.  In fact, most of those years were below 2 ½%.  Fact: Real GDP has only been above 2 ½% in one year, 2010, at 2.73%.  In seven of those years, it has been below 2% and in two of those years it has been negative.

Allow me to summarize:

Equities are at high valuation.

Money market and savings account returns are non-existent.

The Bond Market is at a 5000 year low.

In addition:

The “Wizards behind the Curtain” (i.e. Oz) are involved in an experiment that may or may not be successful.  Hope is rarely an effective investment strategy.

Toto, I’ve a feeling we’re not in Kansas anymore.

In closing, for your information, I also have an adviser. That would be my wife of 49 years.  I asked for her feedback on this article and she asked, “Aren’t you going to finish it?”

Apologetically, I thought I had! Thus, I will leave you with two more of Bob Farrell’s rules: #2) Excesses in one direction will lead to an opposite excess in the other direction.  #3) There are no new eras – excesses are never permanent.  In 1929, and most recently 2000, when market valuation also reached excesses, the excuse was: “This time it is different.”  Uh, it wasn’t.

I hope this helps!   This does not mean as investors we should be hopeless.  I believe we are in a challenging, non-traditional environment that requires other than what are the traditional solutions, formulas and expectations.

By HERMAN RIJ Special for Lehigh Valley Business, March 6, 2017

Herman Rij , Founding Partner of Quadrant Private Wealth, Private Wealth Advisor, in 2014 and has over 46 years of industry experience   He holds the Certified Investment Management Analyst ® (CIMA®) designation  .  He has been named as one of Barron’s “Top 1000 Financial Advisors in America” in 2009, 2010, 2011, 2012, 2013 and 2014 and in Registered Rep.’s “Top 100 Wirehouse Advisors in America” in 2009.   He earned an MBA in Finance from Lehigh University and a Bachelor’s degree from Albright College.