Even Methuselah Died

Methuselah was the longest-living person in the Bible. Depending upon the interpretation, he lived to be 969 years old, give or take a few. In today’s world, we also have some historically long-lived events taking place, although not on a Biblical scale, of course.

The last ten years have certainly been historic. There was annualized double-digit S&P growth over the past decade. Equities are experiencing their longest bull market in history. Interest rates are at historic lows. We are now in the longest economic expansion in history, albeit accompanied by one of the lowest GDP growth rates ever in a ten-year period.  While there is value in reviewing this unique period in history, let’s look forward.

We are entering yet another new decade. However, as the famous philosopher, Yogi Berra, once observed: “It is difficult to make projections, especially about the future.” While the US equity market is coming off a very successful decade, there has never been a ten-year period that followed such a win-streak whose returns were anywhere near as impressive as the first ten. This data does not mean we are taking a doom-and-gloom position on the future. We just continue to emphasize that the need for risk focus and management has probably never been higher.

While there are countless unknowns, I would like to highlight some “knowns” and share some introductions.  2020 will be a benchmark year for me. My career in this industry will be turning 50 years old (another modern-day Methuselah?). Our firm will celebrate its 6-year anniversary in just a few months, hard to believe. In June, Quadrant Private Wealth will have occupied its renovated World Headquarters for three years.

Our firm has grown, patiently. In 2019, we were very pleased to hire the first student who transitioned from our intern program to become a full-time employee. Mike Mittl graduated from Moravian College and joined QPW as a Financial Analyst. Last month, we proudly announced that Joe Flannery had joined Quadrant as a Private Wealth Advisor after a very successful career in sales & finance. Just last week, another former Merrill Lynch team, The Decker Group, became a part of Quadrant Private Wealth.  Dave Decker Jr. and his team, Paul Francis and Mona Campos, bring a valuable dimension of depth, perspective, and talent to Quadrant.  We are so excited to have them aboard.

All of these additions to our firm have something in common. These are genuinely wonderful individuals that have merged into our family. There is no doubt that QPW and our clients will benefit by working with these outstanding people. Part of the “dating process” was to evaluate each other’s philosophies and priorities. The biggest takeaway is our new colleagues’ client-centric focus, a theme that we have propounded since our inception. We happily welcome them all, and deeply appreciate that they are as confident in us as we are in them.

Back to the market, and observations.  As you may recall, my past several annual letters have been themed with a country western song.  This year, I refer to a song by Tracy Byrd: “Ten Rounds with Jose Cuervo”. This song reminds me of the past decade.  The singer had a really tough experience (bear market of 2007-2009) that he wants to forget, and does so by visiting a pub:

  • “Then after three rounds with Jose Cuervo…I forgot what I came to forget”…(Quantitative Easing 1, 2, 3, by the Federal Reserve, 2008-2014)
  • “And after round seven, or was it eight, I bought a round for the whole darn place”…(QE 2019!)
  • “And after ten rounds…I lost count and started counting again”…(New all- time highs S&P, DOW, NASDAQ!)

Just a few weeks ago, before coronavirus struck the world, we witnessed new highs in risky assets.  At the same time, traditional havens from risk (gold and Treasury bonds) also registered records. This juxtaposition is highly unusual, to say the least.

As for the future, remember what Yogi said…Despite Yogi’s wisdom regarding projections, and knowing that even Methusaleh died, there is one prognostication I am unequivocally willing to make as I enter the twilight of my career.  When I reflect upon the founding members of our team, as well as the high quality of character that we have succeeded in adding as we’ve grown, I have paramount confidence in the future of our firm – and most importantly in our capabilities to serve you, our clients, with a rewarding relationship and purposeful stewardship of your assets.

We sincerely thank you for your trust and partnership with Quadrant Private Wealth.


Herman L. Rij, CIMA®





To view the article please click here.

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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.



Herman L. Rij, CIMA®

Founding Partner, Private Wealth Advisor


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.


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.


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.


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.


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.


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.


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.

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!



Herman L. Rij, CIMA®

Founding Partner, Private Wealth Advisor


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.



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.