Featured entries from our Journal

Details Are Part of Our Difference

Podcast Episode – Meir Statman

With the Recent Events in Ukraine, Should I Make Changes to My Portfolio?

Embracing the Evidence at Anheuser-Busch – Mid 1980s

529 Best Practices

Author: Matt Zenz

Matt Zenz on Recent Market Volatility

We asked Matt Zenz to narrate a 10-minute presentation on recent market volatility. If you’re our client, some of this will be repeat information for you, but it could prove helpful as a refresher.

Feel free to share it with others who could benefit from the long view perspective. It’s easy for investors to be influenced by the noise in the world.  This short talk might be just what they need.

Data shown do not represent the results of actual client assets during the defined period. The results shown represent hypothetical returns of $1 invested over the period. HIG’s equity model discussed was approved by our investment policy committee 12/08/2021. In an effort to compare apples to apples, the index or model performance stated does not account for cash flows, trading costs, trading impact, or advisory fees. Note that any hypothetical returns shown will be reduced by advisory fees and other expenses incurred in the management of a client’s account. Discussion of HIG’s advisory fees for new clients is linked here, and overall fees are described in our brochure linked here. The data presented uses historical data provided by third parties. Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Consult a professional before implementing an investment strategy. 

Recent Market Volatility

As of May 17th, the S&P 500 is down 14% year to date. Given the apparent negative economic outlook, many investors are concerned about their investments and what they should do. However, before descending down a worry spiral, pause and ask yourself: “Is this normal? Have I seen this before?”

During the 94 calendar years from 1928 to 2021, the US stock market had intra-year, double-digit declines 59 times. That’s almost two of every three years that the US Market experiences a double-digit decline. Yes, two-thirds of the time. So, we can conclude that a drop like the one we are currently seeing is a common event in the stock market. Not only common but good! Why? The reason investors are compensated with positive returns over time from investing in stocks, instead of cash or bonds, is because of the occasional period of negative returns. If there was no risk, investors would not get any reward for bearing that risk. Said differently, market downturns are features, not bugs.

Let’s dive deeper into those 59 years that had double-digit declines. Did the market recover or stay negative at the end of those years? In 58% of those 59 years, the market ended the year with a positive annual return despite the double-digit drop. 40% of those 59 years finished with a double-digit positive return!

What is the economic intuition behind why markets recover more often than not? Markets do a great job of factoring in both positive and negative news about companies and the economic outlook. Investors only invest in the market at current prices if they expect to earn a positive return. If everyone knew that the market would go down, no one would buy stocks at their current prices. Prices would simply fall until they hit a level that gave an investor a commensurate return for the risk they are willing to take. Today’s market prices reflect the current economic outlook. From here, markets might go up or down, but on average, market returns are expected to be positive over time.

That is precisely why we recommend that our clients stick with their well-thought-out investment plans rather than panic out of the market. The risks you may be worried about are already factored into stock prices. You are not alone in your fears, but that doesn’t mean you have to act on them.  By selling now, you will miss out on the future positive expected return of stocks.  We just can’t predict when those positive returns will happen.

When you look at nearly a century of bull and bear markets, the good times have outshined the bad. While we don’t know how long a bear market will last, staying invested ensures that you capture the bull markets when they do arrive again.

Statistics calculated using data linked here. Past performance is no guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Hill Investment Group may discuss and display, charts, graphs, and formulas that are not intended to be used by themselves to determine which securities to buy or sell, or when to buy or sell them. Such charts and graphs offer limited information and should not be used on their own to make investment decisions. This information is educational and does not intend to make an offer for the sale of any specific securities, investments, or strategies. Consult with a qualified financial adviser before implementing any investment strategy. 

Details Are Part of Our Difference

As our clients know, we seek to eke out every last basis point of potential return for you. So, while we balance the ideal combination of factors to achieve the highest odds of excess return, we also seek to minimize all costs, expenses, and taxes which eat into an investor’s net return. There are a couple of ways this plays out:

Evaluating Asset Managers

When evaluating asset managers, we scrutinize their trading practices to implement their strategies cost-effectively. If they don’t have reasonable trading procedures, their trading costs will be higher and, ultimately, lower the return of your investment.

Reducing Trading Fees

Just like our fund managers, we want to make sure that we are trading cost-effectively to be good stewards of your hard-earned capital. The most recent step in this effort was transitioning much of our recommended portfolio from mutual funds to ETFs, mainly to eliminate fees for trading mutual funds.

At Hill Investment Group, we are not satisfied with just better; we are always working towards finding the best solution we can find for you.  The change from mutual funds to ETFs is a savings win, but we were eager to take it one step further.

Eliminating Hidden Costs

You may not know that ETFs have their own unique hidden trading costs. Like stocks, ETFs trade with a bid-ask spread. That means that, for example, market makers may buy an ETF at $9.99 and sell it to another investor for $10.01. The market maker earns a nice $0.02 profit/share, and the buyer and seller pay the cost.

We wanted to make this better. So, for ETF trades of over a certain size, rather than trade on the exchange with a limited short-term supply, we deal directly with the banks. We get the banks to compete for our business and bid against each other. This can shrink and nearly eliminate the market maker’s profit. This competition and direct access yield better prices than we could otherwise get on the exchange.

For example, we recently rebalanced one of our clients’ portfolios which resulted in purchases of various ETFs. The table above outlines the ETFs we bought, the price we would have gotten if we went to the market (Offer Price), and the price we executed at (Execution Price).

Conclusion: Details Matter

In just one day, using this trading strategy, we saved this client over $1,300 in trading costs. This one example is just one of many ways we fight for every basis point —the details matter and are part of the HIG difference.

Past results are not indicative of future results, or all client results. There are no implied guarantees or assurances that your target returns or cost savings will be the same as the example shown. Future returns or cost savings may differ significantly from the past due to many different factors. Investments involve risk and the possibility of loss of principal. The values and performance numbers represented in this report do not reflect management fees. The values used in this report were obtained from third-party sources believed to be reliable. Savings numbers were calculated by HIG using the data provided.

Featured entries from our Journal

Details Are Part of Our Difference

Podcast Episode – Meir Statman

With the Recent Events in Ukraine, Should I Make Changes to My Portfolio?

Embracing the Evidence at Anheuser-Busch – Mid 1980s

529 Best Practices

Hill Investment Group