Author Archives: Art Haws

Keeping Perspective Through a Downturn

By Art Haws for the Nashville Business Journal | August 2015

The recent downturn in the financial markets has caused significant unrest within the institutional investment community, and what is becoming a heightened sense of panic for the individual investor. To make matters more intense, the financial media has jumped on board using their usual vernacular of gloom and doom.

While recent market developments may seem like a very dramatic economic event, in actuality it is what is referred to as a “correction” which is defined as a 10% decline in the market. We essentially entered that correction territory last week.

The stock market, as measured by the S&P 500, has seen a positive return in 27 of the last 35 years. On average at some point during each of those years, the market was down 14.2%. So while the immediate news is admittedly grim, this activity is far from unusual. And because we have not seen a correction of this scope since 2011, some investors have forgotten what a downturn feels like.

Here are some big picture things to consider moving forward.

The impact of China

One of the primary challenges with the Chinese market is its lack of transparency. China was the world’s primary benefactor of the credit bubble leading up to 2007, but since that time, we have seen a deleveraging within the global economy which accounts for part of the turmoil we are reading so much about today. In addition, China’s reliance on its government’s involvement — for example the current devaluation of its currency — make it a unpredictable player in the international marketplace.

If interested in investing in China, one might consider companies in developed countries (i.e. the US & Japan) that contribute to its economy

Is it prudent to move my S&P stocks to bonds or gold?

During market corrections, broad moves from stocks to so-called safe havens such as bonds and/or gold is a common refrain.  Bonds and gold (among others) can be a part of a diversified portfolio, but wholesale moves from one asset class to another often turn out to be detrimental to long term returns.  It is important to avoid short term emotional decisions and maintain a well thought out investment strategy especially in times of uncertainty. 

Will the Fed really raise rates in this economic climate?

This is the question that is perpetually debated by market pundits and financial media. However, the bigger question you should be asking is to what degree does a potential rate increase actually matter.

Many informed investment professionals already feel that a 25-50 basis point increase has already been priced into the equity markets. If the Fed does increase rates without forcing the economy toward recession, it could eventually strengthen the U.S. and global economy by tempering undue inflation.

How to take the mystery out of millennials

NBJ Column Submission | Art Haws | April 17, 2015

The professional service industry’s dilemma du jour seems to be how to reach this elusive new breed of prospects known as “millennials.” Whether you sell insurance, health care, legal representation or financial services, all you hear is how this increasingly relevant demographic is impervious to solicitation, marketing and guidance from established professionals.

What is not being discussed is that youth — regardless of its generational label — has always maintained a skeptical distance from the establishment, and their hesitation to readily accept the “norms” of today’s business environment is no different.

While millennials may be much more savvy when it comes to the technology world, their needs and their ambitions are essentially no different than any other generation that has proceeded them. They value quality. They value authenticity. They value efficiency. And they value results.

As a professional service provider, these should not be foreign objectives when it comes to client service, and therefore should not be so terribly difficult to communicate just because the audience reached young adulthood around the year 2000.

Invest in the millennial mindset.

Millennials tend (or want) to be self-sufficient in their endeavors; hence the migration toward startups and entrepreneurial initiatives. What they don’t necessarily have are the tools to make their ventures sustainable. This is where a smart professional service provider, such as a fiduciary, can help a budding professional to build a solid platform from which a business, career or investment strategy can be launched.

Essentially you are investing your time, energy and expertise into an individual whom you believe will develop and ultimately require more sophisticated advice and guidance. Having made the investment on the front end — when they were not necessarily the ideal client — will likely generate a sense of loyalty and trust that they are not going to derive from a generic marketing pitch. It requires personal involvement that will ultimately net opportunities for both parties.

Advise through experience, sell through relationships.

If your company is serious about reaching millennials, hire one. This individual will speak a modern marketing language and can push your service offering into circulation while also avoiding those messages that younger professionals find to be contrived and outdated. The decades of experience your senior partners and employees bring to the table mean next to nothing in a millennial sales environment. They want to discuss professional development and planning for their future with someone who is going through it at the same time they are.

Priorities change. Value does not.

Remember telling yourself that you would never turn out like your parents and then you figured out that your parents were not so uninformed as you might have thought? Same holds true when it comes to reaching the Millennial generation on a meaningful topic like securing their future.

Professional service providers need to develop and invest in the tools necessary for Millennials to take charge of their business and financial needs. They should give consideration to bringing on younger talent who have a natural correlation with their peers, and they should utilize their skills and expertise to bring authentic value to their Millennial relationships in the interest of growing sustainable partnerships that will last for generations to come.

Pump Prices and Investment Strategy

By Art Haws for the Nashville Business Journal | January 2015

Standing at the gas pump these days, it’s not hard to spot the smile on people’s faces as they fully register the actual cost of filling up their car. Big SUV owners are down-right giddy with pleasure. But the global economy is a fickle animal, and for everything it gives, it exacts a price in return. This is otherwise known as supply and demand — an Econ 101 principle that every smart investor should heed.

Presently, the United States is producing more oil than ever before. This impacts the volume of global production and subsequently pushes the supply beyond the demand; hence the declining price per barrel. That’s good for consumers, but causes some indecision at the investor level. 

If you look at investment strategy relevant to energy stocks through a historic lens, there are a couple of things to consider. First, the volatility of energy prices is so significant that these stocks are excluded when calculating the core inflation rate. (Incidentally, so are food prices.) Translation: accurate projections in regards to energy stocks is kinda like connecting with a piñata while being spun in a circle amidst a crowd of screaming kids. 

Second, oil in particular is often at the center of larger economic considerations. Case in point, the measured slowdown in China’s economy coupled with the increase of U.S. oil production has a lot of smart people scratching their heads about the future. Take into consideration the impact on other large energy-dependent players such as the Middle East and Russia and you’ve got a full-blown conundrum on your hands.

So how does this shake out for individual investors? The first point is to remain calm. Remember that energy stocks have always been volatile characters, and that the reality of today does not necessarily constitute the reality of tomorrow. Supply and demand are in a constant balancing act, even when one tilts a lot further in one direction than the other. Part of a solid investment strategy is to temper your instinct to react rashly when the market makes big swings, and energy stocks are no different.

HawsGoodwin believes that the chances of energy prices becoming stagnant long-term are very slim. That does not mean that they have necessarily hit their bottom, but it does mean that they can eventually cycle back up, and that could be a very lucrative position to be in if your cards are played right.

For now, consider the savings at the pump a pseudo tax break and speak with an advisor about potential investment opportunities in the energy markets. The turn-around may not happen in the immediate future, but if and when it does, you might be smiling about more than cheap gas.

 

Haws Appears as Guest Columnist in NBJ — Fiduciary Vs. Suitability

Art Haws, Guest Columnist for the Nashville Business Journal | August 214

How is your financial adviser compensated for the work that he or she does on your behalf?

Seems like an obvious question, but most people never ask and never fully understand the fee structure that can ultimately impact the long-term value of their investment portfolio. Communicating with your adviser up front is crucial to understanding not only how they are being paid, but also the prioritization they give you as their client.

Essentially there are two types of client accountability measurement in the financial service world: fiduciary and suitability.

A fiduciary adviser brings an elevated level of accountability to the client relationship. His or her job is to guide an investment portfolio based on the needs of a client in both the short- and the long-term. A fiduciary adviser sees value in a long-standing relationship that is not based on quick pay-outs or trendy investment strategies.

Fiduciary advisor designations include CFPs, CFAs and CPAs. These designations often reflect higher professional standards and commitment to long-term client relationships. These advisers have taken the time to seek out additional, specialized training and are often required to continue their education to ensure their relevance in a consistently changing investment landscape.

Fiduciary advisers are paid through hourly fees or through a structure where their compensation is tied directly to the performance of your portfolio. That can occur either through a pre-determined fee percentage or possibly through a performance-based fee arrangement.

A suitability adviser has no client obligation beyond any one investment at a given time. That means that he or she collects a commission based on the sale of a product, and has no requirement to advise you beyond that single transaction. Suitability advisers are selling products such as stocks, bonds, insurance, annuities and mutual funds.

Importantly, suitability advisers are held to the same ethical guidelines that fiduciary advisers must uphold. However, their model is based on generating revenue that is directly linked with the volume of products sold. So terms such as long-term strategy, diversification and proper asset allocation are not typically part of their vernacular.

In conclusion, the smart decision is the informed decision. If you are a hands-on investor, seek multiple investment products, monitor your activity consistently and look for new opportunities all of the time, then a mix of advisers — fiduciary and suitability — is probably a good idea. If you are more inclined to a relationship where two-way communication is important, investments are driven by long-term need and goals and you are leaning more heavily on the adviser to inform and drive your investment strategy, then you need a fiduciary advisor.

Most importantly, ask the question and understand the nature of the relationship before it begins.

Art Haws is CEO of Franklin-based HawsGoodwin FInancial.