ESG (Environmental, Social, and Governance), sustainable, and responsible investing have evolved from a peripheral and misunderstood investment concept to a mainstream philosophy that now includes more than 500 sustainability-focused index funds amounting to more than $250 billion of U.S. investment assets. As more and more retail investors begin to understand and recognize their ability to have their investments and portfolio mirror their personal values, ESG and sustainable investing is no longer a “trend,” and instead can now be classified as a full-blown movement.
At Towerpoint Wealth, we embrace our responsibility to continually refine and improve how we serve our clients, and have cultivated a comprehensive firmwide ESG and sustainable investing initiative that has expanded in lockstep with the expansion of sustainable and responsible investing. At the forefront of this initiative is our partnership with Ethic Investments, a technology-driven asset manager that powers the creation of sustainable investment portfolios, building ESG-customized separately managed accounts (SMAs) for Towerpoint Wealth clients that are optimized to 1.) track the market, 2.) align with our clients’ strategic investment allocations, and 3.) align with a specific set of sustainability and ESG criteria.
Click HERE to review Towerpoint Wealth’s sustainability pillars, and click below to watch a succinct 15 minute conversation between our President, Joseph Eschleman, and Ethic co-founder Jay Lipman, as they discuss:
What is ESG, sustainable, and responsible investing
Why demand for ESG, sustainable, and responsible investing has exploded over just the past 18 months
Why returns and growth no longer need to be sacrificed when utilizing and implementing an ESG and sustainable investment philosophy
Why utilizing a customized SMA is a much more effective way to develop and implement a inclusionary and exclusionary ESG-focused portfolio, as opposed to an ESG ETF or open-end mutual fund
How the pandemic and COVID-19 accelerated the growth and focus on ESG investing
What the future of ESG, sustainable, and responsible investing looks like
Click HERE to request our free white paper on sustainable investing, or to begin a conversation with us about how to align your portfolio with your personal values.
It seems ridiculous in times like these to write a newsletter about finances and money, but we feel it is our responsibility at Towerpoint Wealth to do so, even if only to provide some respite from politics to our growing family of readers and Trending Today subscribers. We have heard from a few clients that, for a number of good reasons, you already feel like this:
And while we understand that it has been a tumultuous week, let’s not be too quick to throw in the towel on 2021!
Growing levels of speculative activity in some quarters of the market (high volumes of options trading, a robust IPO calendar, and the popularity of cryptocurrencies)
An interval of market consolidation following such an annus mirabilis as investors have experienced over the past 12 months in the financial markets.
While recognizing the cogency and reality of these concerns, at Towerpoint Wealth we have maintained an essentially constructive view of equity prices, based upon the following factors:
Continuing monetary stimulus from the Federal Reserve, with ultra-low policy interest rates and $120 billion per month in “Quantitative Easing” money printing, augmented by significant growth in the M-2 money supply, which tends to produce a stimulative environment for consumer prices, GDP, and financial assets (as shown below, over the past year, the U.S. M-2 money supply has increased at +25.2%, the highest rate of growth in four decades!);
Likely further fiscal stimulus in the form of infrastructure spending and (possibly) more pandemic relief payments;
The advent and rollout of vaccines (even though several notable cases of hitches and delays have been experienced thus far); and
In our opinion, assuming no defections from party lines, a Democrat-controlled Senate appears likely to produce:
Higher Taxes: Tax increases may not necessarily materialize to the degree that markets may have feared earlier, given that the Senate is likely to feature essentially a 50-50 Democratic-Republican tie — with Vice President-elect Kamala Harris in a position to cast a tie-breaking vote in favor of the Democrats, and with Senator Joseph Manchin III (D, WV) and/or others possibly voting to weaken or reject the tax increases. With some delays and/or dilutions, higher corporate, payroll, income, capital gains, and estate taxes may eventually be on the horizon for many taxpayers (the proposed levies in the Democratic platform amount to $4 trillion, with something in the neighborhood of half that amount deemed likely to be passed). The essential tie in political power in Congress may limit the extent of any changes in tax policy, and an important consideration to be kept in mind is the effective date of any tax increases, including the possible likelihood of retroactivity to January 1st, 2021.
More Spending:With proposed spending increases amounting to $7 trillion stretched out over a decade, the new Administration favors entitlement expansion, healthcare, climate, and green infrastructure initiatives (to accelerate the use of clean energy in the power sector, building construction, and transit); hiking the minimum hourly wage to $15 (which could support household incomes and augment growth in consumption); housing; education; and infrastructure. President-elect Biden has several times expressed support for drug price reforms.
Spotlight on Relations with the Judiciary: Although we deem such actions unlikely, President-elect Biden may possibly favor certain proposals from within his party to attempt to curtail the Supreme Court’s authority over specific laws by attempting to: (i) impose term limits; (ii) expand the size of the Court; or (iii) through legislative action, divest the Court of its authority over contentious social issues (referred to in academic circles as “jurisdiction stripping”). Any proposed limitation of the Supreme Court’s own powers will very likely spark intense and determined pushback via lawsuits by the Supreme Court as well as by battling parties on either side of the issues involved.
“Blue Wave” Affected Sectors
Democratic control of the White House, the House of Representatives, and (even if by the narrowest of margins) the Senate (a so-called “blue wave”) could be deemed favorable to large managed-care organizations, renewable energy firms, and the ESG space (companies reflecting and/or supporting Environmental, Social, and Governance initiatives and ideals). Other perceived sectoral beneficiaries of a “blue wave” include, among others: the weakening of the U.S. dollar versus foreign currencies; tax-exempt state and local government municipal bonds; high-yield bonds, small-cap stocks; construction and engineering, manufacturing, materials, industrial machinery, and related firms focusing on the U.S. transportation, maritime, and aviation infrastructure; renewable energy (including wind farms, solar projects, and high-voltage direct current transmission facilities); healthcare equipment and supplies; and cannabis-related companies.
Sectors perceived to be less favorably affected by a slim-margin “blue wave” include: large firms that benefited from the 2017 corporate tax cuts; large-cap pharmaceutical stocks; content liability-protected social network companies (currently shielded by Section 230 of the 1996 Communications Decency Act); dominant technology antitrust targets; the oil and gas sector; tobacco companies; aerospace and defense firms; health insurance companies; student loan servicing companies, asset managers, credit rating firms, and stock exchange operators; precious metals and precious metals mining shares; and labor-intensive enterprises sensitive to minimum wage increases (e.g., retail and grocery companies, restaurant and fast food chains, for-hire ride-sharing companies, and courier and package delivery firms).
Our President, Joseph Eschleman, found a good (albeit chilly) lockdown activity to do with his family last week, watching The Croods: A New Age at the West Wind Drive-In in Sacramento!
TPW Service Highlight – Client Family and Culture
In addition to providing them with the economic peace of mind that comes with the suite of comprehensive wealth management services we provide, as “family members” Towerpoint Wealth clients have also come to expect us to host regular, fun, and unique client appreciation and education events, which we happily deliver on. If you aren’t currently a client, here is what you have been missing out on (!):
As mentioned above, the news yesterday of the Democrats taking control of the Senate led investors to believe that the government will boost fiscal stimulus, which would in theory boost consumption and economic growth, and in turn, inflation.
The chart below compares the relative performance of stocks that benefit from inflation (blue) vs. those that benefit from deflation (black).
Trending Today
In addition to history making and money making, a number of trending and notable events have occurred over the past few weeks:
As always, we sincerely value our relationships and partnerships with you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, and we are here to help you properly plan for and make sense of it.
It’s right around the corner, and it isn’t going to be pretty, so let’s discuss the election’s impact on the stock market now and get it out of the way.
For a good part of this calendar year, we have counseled you that it is prudent to give advance thought to the range of potential economic, regulatory, taxation, spending, budget deficit, societal, and financial market implications of the national election results, depending on whether Republicans or Democrats win one or more of the White House, the House of Representatives, and the Senate.
After Labor Day, the campaign is likely to reflect increased amounts of political vociferousness, perhaps some degree of vehemence, and even apportionments of vitriol (we hope and pray not too much), with the potential to cause meaningful shorter-term shifts in financial asset prices. That is precisely why we recommend forming beforehand, and sticking to, a well-reasoned and disciplined asset allocation plan and investment strategy tailored to your personal and financial circumstances, time horizon, objectives, and temperament.
November 2020: The 59th Quadrennial Presidential Election
September, October, and then, the Election: With the VIX volatility index (see the Graph of the Week below) having risen an average of four points ahead of each of the last seven presidential elections since this measure was created, important issues to consider in the upcoming weeks ahead include:
How clearly (and energetically) each political party’s convention message was received, perceived by, and responded to by their respective loyal voter bases;
The nation’s reactions to the anticipated three presidential debates and one vice presidential debate;
Assessments of the strength of party identification among various segments of the voting population, as well as in the composition of the overall electorate; at the same time, taking into account the ability of each ticket to generate serious backing from less-supportive voter populations;
Which candidate voters (considering demographic attributes, where they live, how they classify themselves on the political spectrum, and other characteristics) think can better confront America’s broad challenges, including the coronavirus pandemic, the economy, social issues, and pressing global concerns;
The effectiveness of voting procedures, trust in mail-in balloting, the degree of putative social media and foreign-based election interference, actual voter participation, and the perceived veracity and legitimacy of the results; and
The potential consequences of prolonged uncertainty associated with a contested election (should it occur) for social order and the financial markets.
If President Trump is re-elected and wins the White House, Democrats keep control of the House of Representatives, and Republicans keep control of the Senate, such an outcome would likely favor securities in the following sectors: technology, defense, finance, healthcare, and energy, while potentially putting pressure on sectors and companies that could be harmed by further deterioration in U.S-China relations;
If Vice President Biden wins the White House, Democrats keep control of the House of Representatives, and Republicans keep control of the Senate, such an outcome would likely favor companies and sectors that would be deemed to have thereby avoided increased taxes and a heavier regulatory burden;
If Vice President Biden wins the White House, Democrats keep control of the House of Representatives, and Democrats take control of the Senate(sometimes referred to in the media as a “blue wave”), such results would substantially raise the odds of higher taxes. Offsets to the latter outcome could come in the form of substantial additional spending on infrastructure, education, and healthcare. Securities in the following sectors, among others, are perceived to be disadvantaged by a “blue wave” Democratic sweep: defense, healthcare, financials (via increased regulation) and energy (with expectations of restricting fracking and limiting drilling on federal lands in Texas/New Mexico’s Delaware Basin and Southeast Montana/Northeast Wyoming’s Powder River Basin), while giving a lift to sectors and companies that could be helped by improving U.S-China relations.
The Pre- and Post-Election Tax and Spending Outlook
As shown in the panel below, the current taxation and spending policy positions of Vice President Biden contain numerous base-broadening elements that increase taxes by approximately $4 trillion, while increasing spending to the tune of approximately $6 trillion in areas including healthcare, infrastructure, education, energy research, and other initiatives.
Released on Wednesday, July 9, the 110-page report of the Unity Task Forces (created and staffed by individuals designated by Vice President Joe Biden and Senator Bernie Sanders) contains a detailed set of policy recommendations in six domestic policy areas:
Health care (while not supporting Medicare for All, the report proposes a public option, a government-administered plan “like Medicare” that would be available to all Americans; on drug pricing, the report recommends appointing a government board to set prices that Medicare would pay for new drugs);
The economy (with $400 billion pledged for procurement of domestically made goods and $300 billion to support high-tech research);
Climate change (here, a total of $2.0 trillion over four years is earmarked to shift millions of jobs into clean energy, with the goal of cutting emissions from power generation to zero by 2030, having net zero emissions by 2050, and introducing new fuel-economy standards);
Criminal justice (proposing reforms to law enforcement and policing practices);
Education (including universal preschool for three- and four-year-olds, at a cost of $775 billion over a decade), and
Immigration (proposing to end travel restrictions against 13 countries, and to maintain protections from deportation for approximately 700,000 young immigrants known as “Dreamers”).
Should Vice President Biden win the White House, financial asset prices in general, as well as specific industries and companies, are likely to be affected by the speed and degree to which the new Administration and Congress (whose degree of support depends on which party controls the House of Representatives and which party controls the Senate) might be able to implement priorities in these and other areas.
For further granularity, the following panel sets forth eight elements of personal taxes and four elements of corporate taxes: (i) under the current U.S. tax regime, which would not currently be expected to change much under President Trump (although the President has endorsed the idea of payroll tax reductions; tweeted about a potential capital gains cut; and vowed to extend the Tax Cuts and Jobs Act of 2017, which capped the so-called SALT (State and Local Tax) deduction at $10,000); and (ii) as currently outlined as taxation policy under a Biden administration.
Given that the process of turning taxation proposals into law takes time, it is likely to be at least June 2021 for new tax legislation to be enacted. On several aspects of tax planning (including the timing and forms of income and expenditures; tax gain-loss harvesting; and retirement, estate, and gifting strategies), it may be sensible to postpone any major moves until a judicious assessment can be made of the makeup of the post-election government and its specifically-expressed legislative agenda.
Regardless of the fireworks, and ultimate outcome, of the election, we will always believe that good, well-run, profitable companies will remain good, well-run, profitable companies, independent of a Trump or Biden win.
What’s Happening at TPW?
Happy to have him aboard, contributing, and part of the Towerpoint Wealth family, the TPW team has been indoctrinating Matt Regan a.k.a. “the new guy,” over the past two weeks:
Our new Wealth Advisor, Matt Regan, connected with our President, Joseph Eschleman, and our Partner, Wealth Advisor, Jonathan LaTurner, for an enjoyable business lunch at the historic Sutter Club in downtown Sacramento earlier this week.
Our President, Joseph Eschleman, and his wife, Megan Eschleman, hosted Matt and his lovely wife Alyssa for an enjoyable evening of tri-tip, corn on the cob, chicken skewers, and Frank Familycabernet.
TPW Service Highlight – Social Security Optimization
Many investors are not prepared for retirement, and have not properly planned for how to structure their post-retirement income. With the popularity and availability of pension plans quickly waning, and rock bottom interest rates making it difficult to derive enough interest income from bonds, the importance of Social Security has never been greater.
Through careful planning and the development and utilization of a custom Social Security optimization analysis, our aim at Towerpoint Wealth is to help our clients structure a plan to ensure that they are not leaving any money on table when it comes to their Social Security benefits. According to the Annual Statistical Supplement to the Social Security Bulletin, 70% (!) of all retired workers started taking benefits before their normal retirement age. For some this may make sense, but for many, this will result in the forfeiture of tens, if not hundreds of thousands of dollars over their lifetime.
Let us help you scientifically analyze the myriad of Social Security claiming strategies available to you, and develop a customized plan to ensure you have properly maximized this hugely important retirement income benefit.
Graph of the Week
The market anticipates some pretty incredible fireworks (as we probably all do) leading up to November’s elections. With Joe Biden’s lead over President Trump drifting lower since the late summer, there is now even more expected volatility around Election Day, and things almost assuredly will only heat up further as we get closer to November.
The graph below reflects the historical activity and pricing of the VIX, a popular index that measures future stock market volatility, used by investors to hedge against it. Currently, November’s election is the most expensive event risk on record. With many more absentee and mail-in ballots expected to be cast in this election, the possibility certainly exists that we do not know who the winner is on Wednesday, November 4.
Quoting Cameron Crise, Bloomberg macro strategist, “In the history of VIX futures contracts, we’ve never had an event risk command this sort of premium… That obviously suggests that markets anticipate some pretty incredible fireworks.”
Don’t say you haven’t been warned, keep your seatbelt firmly buckled, and most importantly, don’t be surprised nor overreact to the upcoming craziness!
As always, we sincerely value our relationships and partnerships with each of you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, and we are here to help you properly plan for and make sense of it.
With a heavy heart almost three years ago, we recognized the vicious wildfires tearing through both Napa and Santa Rosa. Today, with massive wildfires burning throughout Napa, Sonoma, Lake, Solano, and Yolo counties, we feel compelled to do so again.
As we mentioned in that newsletter, fortunately tough times do not last, but tough people do. And as dedicated and tireless relief and rescue crews work to contain and extinguish these devastating fires, we look to a rare bright spot during this time of destruction, symbolizing resilience, literally from the ground up as it rises from the ashes – the California fire poppy.
All of this begs the question – what can we do to help? The answer – stand with us and please give if you are able.
Towerpoint Wealth is committed to directly helping those in need during these fires, and we are pleased to offer a 100% match, up to a total of $15,000, of any charitable donations made by you to any of the following three fire-relief organizations:
California Wildfire Relief Fund
Solano Disaster Relief Fund
2020 Napa County Wildfires Fund
Please simply email us your donation receipt at info@towerpointwealth.com, and we will promptly email you our matching donation receipt within 48 hours.
* IMPORTANT NOTE: Please also remember that the recently-passed CARES Act created a one-year tax-deductible charitable deduction of $300 for the 90% of taxpayers who claim the standard deduction in 2020!
A New Addition to the Towerpoint Wealth Family
We are pleased and excited to welcome Matt Regan, CPA, MBT, to the Towerpoint Wealth family!
Matt specializes in working with attorneys, helping them manage the unique aspects of proper coordination all of their financial affairs. We look forward to having him utilize his tax consulting and wealth management skills and experience to help his own and other clients of Towerpoint Wealth save money on their income taxes, manage the downside risk of their portfolios, and properly plan for a comfortable retirement.
Please click HERE to read more about Matt, and please reach out (916-405-9164) to say hello, congratulate him, and help us with a warm “welcome aboard!”
TPW Service Highlight – Customized Responsible ESG Investing
Are you aware you are able to align your portfolio with your personal values, without compromising your ability to have a diversified portfolio positioned to earn competitive returns? Many investors are not. Responsible investing, also known as ESG investing (Environmental, Social, and Governance) has exploded in popularity and importance over the past ten years (see the GraphoftheWeek below), and has quickly become an area of specialization at Towerpoint Wealth.
Screening to either avoid or advance ownership of specific companies, based on a myriad of different sustainability issues and criteria, is a central objective of ESG investing:
Environmental issues range from climate change, clean water, animal welfare, and deforestation. Social issues can include racial justice, education, poverty, democracy, and women’s rights. Governance issues encompass worker treatment, corporate ethics, and corporate diversity and inclusion. Click the Ethic Sustainability Pillarsstory found below for a deeper understanding of the various ESG issues that Towerpoint Wealth can specifically screen for, to help you avoid or advance your investment in equities consistent with these issues.
Time to do an ESG “healthcheck” on your portfolio? We welcome an invitation to sit side-by-side with you to conduct a deep-dive sustainability analysis of your portfolio, where we will x-ray your investments to evaluate what is considered “clean,” what is considered “dirty,” and how to make intelligent and tax-efficient ESG improvements. Click HERE to find out more, or click on our What’s In a Name? A Guide to Responsible Investingeducational white paper found below.
As always, we sincerely value our relationships and partnerships with each of you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, and we are here to help you properly plan for and make sense of it.
