Category: Investment

Have you ever considered the impact your investments make? Have you looked at the companies in which you’re investing and considered how they contribute to global problems or solutions? If you’ve wanted your investments to align with your values, you’re not alone. You just might not realize there’s a way to do so.

THE GROWTH OF SOCIALLY RESPONSIBLE INVESTING

Socially responsible investing (also known as sustainable, ethical, or conscious investing) is an investment strategy that aims to consider both financial return and social good to inspire social change. Think of it as an opportunity for doing well while doing good. Socially responsible investing, or SRI, has increased in popularity over the years, growing 76% between 2012 and 2014 from $3.74 trillion to $6.57 trillion assets, according to Envestnet PMC. 

Particularly since the Trump presidency and a slew of government policy changes, demand for SRI has continued to steadily increase. Additionally, Millennials have shown significant interest in SRI, which has contributed to the growth. Investors want to be able to invest in companies that support issues they care about, whether that’s social programs, education, or the environment. Individuals investors can essentially target their concerns through their investment behavior and consumption decisions.

DOES SOCIALLY RESPONSIBLE INVESTING MAKE SENSE FOR YOU?

Investing in companies that support causes you care about while also generating returns is appealing to many investors, which is likely why SRI has steadily increased. However, opinions are still mixed about the impact of SRI strategies on performance. Some studies claim that socially responsible investments don’t perform as well as traditional stock market funds. Additionally, some of these investments come with higher annual fees. And, depending on the type of company in which you wish to invest, such as wind, solar, or other alternative energy funds, you may face more volatility.

Morningstar reports that the average U.S. SRI mutual fund trails the benchmark S&P 500 index, but many funds that don’t fall into the SRI category have also fallen behind the market. As you can see, the jury is still out on whether or not sustainable portfolios experience a performance penalty.

Generally speaking, professionals recommend identifying reasons to invest in a stock, rather than focus on avoiding ones you don’t align with. Instead of focusing on stocks you don’t want to invest in, research those that you want to support. 

FINDING BALANCE

Like any financial strategy, balance is key. Depending on your specific goals, you can incorporate SRIs into your portfolio. This gives you the opportunity to generate returns and save for your future while also supporting companies with social missions that align with your values.

The first place to start is to speak with a financial advisor and discuss your investment goals, your social values, and how they can integrate. At Archer Investment Management, our investment approach is disciplined, unemotional, and highly diversified and we favor objective advice to “hot stocks” of the moment. The philosophy we follow is based on the science of investing that drowns out the noise of the media and focuses on time-tested and thoroughly-researched strategies that have been proven to drive returns, reduce volatility, and simplify the investment process. 

Providing comprehensive investment guidance, we can help you evaluate your SRI opportunities. For a complimentary portfolio review, contact our office at 800-840-5946 or click here to schedule a phone call.

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com. 

Have you ever ridden a touring bicycle down a mountain? I wouldn’t recommend it. Touring bikes are designed for paved roads, so shock absorbers are eliminated to make them lighter and pedal more efficiently.

If you took a touring bike down a mountain, you would end up in a lot of pain. For something like that, you need a mountain bike. They are designed with shock absorbers to cushion the impact of the rocks, logs, ditches and other obstacles you will inevitably confront on the trails.

CAUSES OF A BUMPY INVESTMENT RIDE

Sometimes investors feel like they are riding a touring bike down a rough mountain. Every bump in the markets makes them want to cry out in pain, and they wonder if they’ll ever make it to their final destination. Why is this?

One thing that can make for a really jarring ride is having an undiversified portfolio. If your investments are highly concentrated, every little dip in the markets will be magnified and leave you reeling.

Another thing that will make for a really choppy ride is constantly changing asset allocations based on short-term rough patches in the markets. If you let every market pothole throw you off your bike, you’ll never get anywhere.

HOW TO SMOOTH YOUR INVESTMENT RIDE

So, how can you smooth out your ride? What shock absorbers can you add to your bike to get you down the investment mountain in one piece and enjoy the ride?

Diversification. Spreading your portfolio across different securities, sectors, and countries will even things out and make for a much more comfortable, safe, and enjoyable ride. You will need to identify the right mix of investments, like stocks, bonds, or real estate, that align with your risk tolerance. This will keep you on track toward your goals no matter the obstacles that crop up.

You may not end up with the top performing portfolio, but you definitely won’t have the worst either. This strategy isn’t about being the best, it’s about creating a smooth enough ride for you to hang on until you get to the bottom of the hill. Without these shock absorbers, you are likely to quit halfway down.

IT’S IMPOSSIBLE TO SWERVE AROUND EVERY BUMP

Just as you would try to swerve around everything possible if you were riding a touring bike down a mountain, people with concentrated portfolios resort to market timing and constant trading in an attempt to anticipate the top-performing countries, asset classes, and securities.

This is nearly impossible. Here’s an example of just how unpredictable the ride can be. Among developed markets, Denmark was number one in US dollar terms in 2015 with a return of more than 23%. But if you had bet big on that country the following year, you would have ended up in a ditch. In 2016, Denmark slid to the bottom of the table with a loss of nearly 16%.

Even the US stock market, which is the world’s biggest, can throw you for a loop. It has been a strong performer in recent years, holding the number three position among developed markets in 2011 and 2013, first in 2014, and sixth in 2016. But a decade ago, in 2004 and 2006, it was the second worst-performing developed market in the world.

Trying to predict which part of a market will do best over a given period is also challenging. For example, while there is a plethora of evidence to support why we should expect positive premiums from small cap, low relative price, and high profitability stocks, these premiums are not laid out evenly or predictably across the map. US small cap stocks were among the top performers in 2016 with a return of more than 21%. A year before, their results looked relatively disappointing with a loss of more than 4%. International small cap stocks had their turn in the sun in 2015, topping the performance tables with a return of just below 6%. But the year before that, they were the second worst with a loss of 5%.

If you’ve ever ridden down a mountain, you know to expect the unexpected. There may be a rut or rock pile hiding just around the next turn. It’s important to have a bike with proper shock absorbers to handle whatever may come. Diversification isn’t some kind of magic that will make everything a perfectly smooth ride. But, it does smooth things out so that no individual investment will throw you off your bike. There will still be bumps along the way, but nothing that will keep you from reaching your goals.

DOES YOUR INVESTMENT BIKE NEED A TUNE UP?

Take a look at your portfolio. Does your investment bike need some shock absorbers? You’ve come to the right place because I’m an investment mechanic! With sufficient diversification, the jarring effects of performance extremes level out. Then, you will be able to hang on and enjoy the ride all the way to your investment destination. Click here to schedule a phone call, and we can get your portfolio ready for whatever lies around the next turn in the trail.

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.

Twingo. Clio. Polo. Ibiza. Do you know what these are? Maybe Caribbean islands?  Possibly the names of Angelina Jolie’s children? Surprisingly, these are the most popular cars on the Spanish island of Tenerife, 90 miles north of Morocco. I only know this because I tallied them as they passed me on my four-hour bicycle ascent up the famous mountain El Teide.

I consider myself a “car guy,” yet I had never heard of these cars. I find that the more I travel, the more my eyes are opened to the fact that there are people living very different lives from mine who have valuable perspectives. This simple car analogy reminds me that I need to travel more and expand my viewpoints and knowledge beyond my everyday life in Austin, Texas.  

CHALLENGING OUR PRECONCEIVED IDEAS

It’s easy to think I’ve got everything figured out. I know where I want to live, what I like to eat, and the best places to ride. But that’s not the reality. Those things may be comfortable and familiar, but I keep finding new favorite things in new places. For example, Gran Canaria has the most difficult climbing in the world (not Boulder, CO), and I might like speaking Spanish more than English because it flows better!

This past election brought up plenty of talk about our personal “bubbles,” but many of us don’t take the time and effort to recognize our own bubbles that we base everything else on. It takes habit and discipline to look at things from a different perspective and learn other ways to do things.

For example, at one of my nightly team dinners, I sat near a Brazilian couple and listened attentively as they took me for a personal tour of South America. As I heard their thoughts, my limited life bubble seemed in stark contrast to their worldliness, and my preconceived notions were challenged. In their minds, Brazil is the “America” of South America, big and diverse with the best beaches in the northern part of the country (please don’t let this secret out!). Argentina is like France, where residents feel culturally elite and more refined than their South American neighbors; and Chile is most like Canada, friendly and inviting. Now that I know more about South America from their point of view, it feels less daunting for me to travel there, and Chile may show up on a future itinerary of mine.

It was fascinating to hear them thoroughly discuss a topic I had never taken the time to consider. I quickly learned that my worldview is greatly limited by my lack of experience. Just like most of us, I tend to favor the familiar and fear the foreign because I don’t know any differently. America is the best at everything after all, right?  This concept goes beyond travel, it relates to your portfolio as well.

THINK OUTSIDE OF THE INVESTMENT BOX

When I was a young investor, my portfolio leaned heavily towards familiar U.S.-based investments. In my mind, they were certainly less risky than unfamiliar foreign holdings. But I soon learned that there is a world of opportunity in equities. Did you know that the weight of the U.S. stock market relative to the global market is approximately 54%? As shown below, nearly half of the world’s investment opportunities are outside of the U.S., with non-U.S. stocks representing more than 10,000 companies in over 40 countries.

Although U.S. stocks have been in favor the last few years, this has not always been the case. January 2000 – December 2009 is known as the “Lost Decade” because U.S.-only investors lost money cumulatively over those 10 years. Here’s a look at how the market played out during that period:

Exhibit 2: Global Index Returns January 2000–December 2009

Diversification is Key

Over the last 20 calendar years, the U.S. has been the best performing country twice, and the worst performing country once. Global diversification implies that an investor’s portfolio is unlikely to be the best or worst performing, instead providing the means to achieve a more consistent outcome. It helps reduce and manage catastrophic losses that can be associated with investing in just a small number of stocks or a single country.  

It’s important for us to expand ourselves with new experiences and knowledge as well as seek diversification in our portfolios. Not only does it improve our quality of life, but it also makes us more understanding of others and lessens extremes. If you are curious about global markets or worried that your portfolio isn’t globally diversified enough, I’d love to talk to you. Click here to schedule a phone call. To close, te veré en Santiago (I’ll see you in Santiago)!

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.

For many companies, offering employee stock options is a way of rewarding their employees while also aligning their interests with those of the company. Once reserved only for executives, stock options are now being offered to many rank-and-file employees as well. In fact, the number of people holding stock options has increased about nine fold since the late 1980’s. (1)

Your employee stock options can be a great benefit — if you know what to do with them. Here are three ways to maximize the value of your employee stock options, so you can avoid paying excessive taxes or leaving money on the table:

1. UNDERSTAND THE TAX CONSEQUENCES

Albert Einstein once said that “the hardest thing in the world to understand is the income tax.” (2) Taxes can get complicated, even for someone like Einstein. However, not understanding how taxes work for your employee stock options could cost you a lot of money.

How Stock Options Are Taxed

There are two kinds of stock options, Incentive Stock Options (ISO) and Non-Qualified Stock Options (NSO). The main differences are who can receive them and their tax treatment. When NSOs are exercised, the difference between the grant price and the fair market value of the stock (called the “bargain element”) is taxed at ordinary income rates. Then, when the stocks are sold, the gains are taxed as either short or long-term capital gains, depending on how long they were held.

ISOs receive favorable tax treatment because they meet certain requirements in the Internal Revenue Code. Unlike NSOs, the exercise of an ISO is not a taxable event, though it could trigger the Alternative Minimum Tax. If the shares are immediately sold, the bargain element is taxed as regular income. Holding on to the shares is how you can get the tax break. Everything (the bargain element and the gains) is taxed at the long-term capital gains rate if you hold the shares for at least a year after exercise and do not sell them for at least two years after the grant date. (3)

Filing An 83(b) Election (4)

If your company stock is growing steadily, it might be a good idea to file an 83(b) election. An 83(b) election simply allows you to pay the income taxes due at the grant date instead of the exercise date.

For example, let’s say you are granted stock options at $25 and the price when you exercise them is $50. With an 83(b) election, you pay income taxes upfront on the $25 cost. Any growth from there is taxed as capital gains when the shares are sold. Without the election, you pay regular income taxes on the $50 price when you exercise the options. The election allows you to pay half as much at the regular income tax rate and push the gains made between granting and exercising into the lower capital gains tax rate.

Filing an 83(b) election can be beneficial if the value of your company stock is increasing steadily. However, if the prices drop or the company goes out of business, you will be worse off for having filed.

Smoothing Taxable Income

It’s important to coordinate your taxable events relating to employee stock options. Planning for income taxes generated from exercising options ahead of time can be extremely valuable to you. Smoothing taxable income over time to stay out of high marginal tax brackets can save thousands in taxes.

2. GET YOUR DATES ORGANIZED

If you’re like many executives, you have received a variety of restricted stock and stock options at different times and for different amounts. The restricted stock may have very different vesting dates than the stock options and the options may expire at surprising times as well. With so much going on, it’s easy to miss a deadline. A lot of people’s stock options expire because they plan to exercise them at the last minute only to get distracted or simply forget. Not exercising your valuable stock options is like throwing away money.

Being organized is crucial if you want to make the most of your employee stock benefits. There are strict deadlines if you want to take advantage of some of the tax savings listed above. Don’t leave money on the table. Staying on top of dates and amounts can save thousands in taxes and help avoid missing out on expired options.

3. DON’T FORGET TO DIVERSIFY

Employee stock options are a nice benefit, but you don’t want too much of your financial well being tied up in one company. I generally recommend holding no more than 10% of your portfolio in your company’s stocks and options. Why?

If the company performs poorly, it will depress the stock price and you may be laid off at the same time. There go your portfolio, your income, and your health insurance all at once. Unfortunately, this has happened to many people. Back in 1999 when Enron filed for bankruptcy, more than $1 billion in employee retirement savings simply evaporated. Many Lehman Brothers employees experienced the same thing as well. (5)

HOW CAN WE HELP?

At Archer Investment Management, we understand employee stock options. We have experience helping clients minimize related taxes, stay on top of dates and deadlines, and diversify their portfolios. When it comes to your employee stock options, there is a lot at stake if you don’t do things right. Don’t try to do it all alone. Book an appointment with us online here so we can sit down and discuss how you can get the most out of your stock options.

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.

_______

(1) https://www.nceo.org/articles/employee-stock-options-factsheet

(2) http://quoteinvestigator.com/2011/03/07/einstein-income-taxes/

(3) http://www.investopedia.com/articles/optioninvestor/07/esoabout.asp

(4) https://www.cooleygo.com/what-is-a-section-83b-election/

(5) https://www.fidelity.com/viewpoints/stock-plan-mistakes

When it comes to the financial world, things can get complicated very quickly. If you Google “investment principles,” you are going to get an exorbitant amount of advice, some of it even contradictory. So how can you tap into the secret of investing with the overload of information out there? How do you invest in a way that will help you build wealth smarter?
Here is what I believe to be ten simple rules in real terms. Rules that, if you follow them, could result in a better investment experience.

1. MARKET PRICING EXISTS FOR A REASON

When you see the price of a stock, what you don’t see is the entire process that went into setting that price. In 2015, around 99 million trades took place daily, with a dollar volume of around 447 billion. What these numbers tell us is that buyers and sellers are continually setting the market prices for stocks, and we can rely on these prices to be fair.

Instead of trying to prove thousands of professional analysts with powerful resources at their fingertips wrong, embrace market pricing and save yourself time and energy for the things you love.

2. DON’T TRY TO BEAT THE MARKET

In investing, the long-term is what matters. While a select few mutual funds might outperform their benchmarks in any given year, over time we see that this outperformance usually doesn’t last.

No matter how hard they try, even the most highly educated and experienced financial analysts have no way of knowing what the markets will do on any given day. While we may hear stories of people who have found incredible success through the stock market, those who accurately time the markets are very lucky and very rare. If you want to see growth in your portfolio through the stock market, stick to your investment strategy and ignore the short-term noise.

3. HISTORY DOESN’T ALWAYS REPEAT ITSELF

On that same token, don’t make your investment decisions only based on past performance. Just because a mutual fund blew everyone away last year doesn’t mean it will thrive this year.

4. LET THE MARKETS WORK FOR YOU

In general, investors who hold tight to a long-term perspective and stay committed to their investment philosophy will more likely see growth in their portfolio. History tells us that the markets have provided enough growth to beat inflation, so sit tight and let the market work for you.

5. KNOW WHAT DRIVES RETURNS

Academic research has identified certain factors that may help you get the best return for your investments:

• Stocks vs. Bonds: How you allocate your portfolio between stocks and bonds will have the biggest impact on your returns (and risk).
• Company Size: Stocks of smaller companies (“small-cap stocks”) have historically had higher returns when compared to their larger brethren (“large-cap stocks”).
• Value Stocks: Stocks can be broadly divided into value stocks or growth stocks. Historically, value stocks have outperformed their more flashy growth-orientated peers.
• Profitability: Companies with higher profitability tend to have higher returns, over time, compared to lower-profitability companies.

If you focus your portfolio toward these known factors, you may have a higher probability of better returns.

6. BROADEN YOUR INVESTMENTS

It’s drilled into us pretty regularly that we need to diversify our portfolios (in fact, that’s one tip you’ll probably see on any smart investment principle list). But what many don’t realize is that it’s not enough to diversify only within your own country. The U.S. counts for about half of the global market’s capital, so if you don’t diversify internationally, you’re missing out on some significant opportunities.

7. TIMING THE MARKET WON’T HELP YOU

This is similar to #2 and #3. While there are market trends we can follow, the markets are anything but predictable. You will only cause yourself undue anxiety by trying to forecast what will happen next. Turn your focus to ensuring that your portfolio is globally diversified, and you will very well reap the rewards wherever and whenever they occur.

8. MANAGE YOUR EMOTIONS

Behavior is a major factor in investment success. By being aware of your emotions and knowing your behavioral pitfalls, you can avoid many investment mistakes caused by panic. Finances are an integral part of our lives, so I understand how difficult it is to separate the two. Turn to an advisor to help you stay strong and committed when the market feels like a roller coaster.

9. IGNORE THE MEDIA HYPE

Media headlines often play off of our emotions, causing us further distress than we might have already had. The news can blow things out of proportion and cause us to veer from what we know is true and wise. If you have a set investment philosophy and strategy, you will be less inclined to fall prey to sensationalized headlines.

10. CONTROL WHAT YOU CAN

Since you can’t control the market no matter how hard you try, work on clarifying your goals and needs and work with an advisor to create a plan tailored to your unique situation.

Investing doesn’t have to be complicated, and it doesn’t have to scare you. If you want to pursue a better investment experience, implement these tips into your investment strategy and you may improve your chances of better investment returns and a secure financial future. At Archer Investment Management, we hold true to these ten rules and value disciplined, unemotional, and highly-diversified investing. You will receive objective advice from us as we work together to customize an investment plan for you. If you have any questions about these tips, click here to schedule a phone call. I’d love to hear from you!

About Richard

Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.