wealth – The Agnostic Investor

A Note on Performance

After establishing Coroebus Wealth Management June 3, 2013, we began managing our bond portfolio in April of 2014. I have been advised not to offer my services based on market performance as capturing alpha is rare and past performance does not guarantee future results. That being said, we had a great year.

As the Federal Reserve Board remarks pivoted to a dovish tone, the commonly held benchmark Bloomberg Global Aggregate Bond Index returned 5.5% in 2023, following the bond markets worst year ever. As a passively managed strategy our portfolio returned 7.58% in 2023.

Although minimizing downside capture is key to long term performance, we believe volatility is a matter of tolerance rather than a pure measure of risk. Research supports portfolio managers capture enough alpha to pay themselves, and those who outperform their benchmark over a five to ten year period tend not to over the following period.

We won’t dive in to all of the risk metrics here as I would like to take a more behavioral perspective. As I reviewed monthly returns preparing for this post I noticed the strangest correlation between negative periods and having a generally poor state of being or mood. The anxiety of anticipating a decrease in cash flow may be a factor, we also accept anxiety is a cause of poor decision making.

As a solo entrepreneur balancing the daily operations and compliance issues that come with running an investment advisor can occupy mental bandwidth that may have been devoted to portfolio management tasks. We have met several existentially threatening challenges and have managed to persevere.

As I continue to make progress on Pythia, a certain joy has come with finally making progress on what may be my magna carta. As my mood improves so does my vision. Though balancing operations with immersing myself in computer science/IT, and my other endeavors is a challenge, I am absolutely excited to deliver a unique service to the industry.

Stay tuned.

The Great Wealth Transfer, Inequality and Preparing Heirs

The Great Wealth Transfer refers to a predicted transfer of wealth mainly from baby boomers (those born 1946-1964) to millennials and Gen Z households (HH). As younger generations are prepared to inherit this wealth we might expect significant changes in economic and social dynamics.

According to the 2022 Global Wealth Report published by Credit Suisse, global wealth has reached $436 trillion, with the United States being home to some 140,000 ultra high net worth individuals, (those with assets totaling over $50 million).

Though estimates vary as to the dollar amount of the great wealth transfer and its duration, as of 2023 the Federal Reserve Boards Survey of Consumer Finances and Financial Accounts reports baby boomers hold $77.1 trillion in assets, properties, businesses, and investments, a 52.8% share of $145.95T in total U.S. HH wealth.

Note: Amongst the group of 2,544 billionaires around the globe, 751 call America home and 1,000 are prepared to transfer some $5.2T to heirs over the next 20-30 years (UBS Billionaire Ambitions Report).

Wealth Inequality

The Federal Reserve Bank of St. Louis’ State of U.S. Wealth Inequality offers us these key takeaways:

The top 10% of households by wealth had $7.0 million on average. As a group, they held 69% of total household wealth.

Black families owned about 24 cents for every $1 of white family wealth, on average.

White households continue to own a disproportionately greater share of total family wealth. Though only representing 63.8% of households, white households owned 82% of total family wealth in the second quarter of 2023; this is 28% more wealth than their representation in the U.S. might predict. In contrast, Black families accounted for 14.2% of households and owned 4.5% of total family wealth (68% less wealth given their household share), while Hispanic families represented 10% of households and owned 3.1% of total family wealth (69% less wealth).

Successful Wealth Transfers

In the book Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values, Vic Preisser and Roy Williams offer a checklist for successful wealth transitions. Their research of 3,250 wealthy families found that the most common reason for unsuccessful wealth transitions is a lack of communication between the wealth creator and their heirs. Notably, some 2 out of 3 wealth transfers do not go how the wealth creator intended.

Families might prepare by having conversations that will allow the heirs to gain a deep understanding of what the purpose of the assets are, including a stated mission. It may be prudent to define roles and responsibilities for each heir that extend beyond estate plan documents and have periodic meetings as individuals grow into their roles.

We imagine an extreme variation in financial and estate planning needs depending on race and culture. Most heirs decide to choose their own professional advisors. It should be noted technology has likely decreased the amount of assets required to operate family offices. Take time to reflect on where you and your family are on your journey and embrace the conversations that will protect your families assets long after your transition.

Do you need a will?

Four Concepts Wealthy Children May Know

Wealth: Net Worth and Liquid Net Worth

Income in the U.S.

Getting to the top…

Wealth: Net Worth and Liquid Net Worth

Assets – Liabilities = Net Worth (or Wealth)

Use our Financial Position Worksheet to calculate your net worth.

Liquid Assets – Liabilities = Liquid Net Worth

Liquid assets are those which you can easily convert to cash, usually within a week, without much change in their value. That excludes your house and car from the liquid asset calculation, meaning your liquid net worth is typically much lower than your net worth.

Having sufficient emergency funds in savings to cover three months to a year of expenses may be prudent in case of unemployment, illness or divorce.

Source: Federal Reserve Board Economic Well Being of U.S. Households in 2020

According to the U.S. Census Current Population Report The Wealth of Households 2020, while 83% of Americans own a car, 61.9% have equity in their homes, 25.1% have stocks in investment accounts, 15.5% have business assets, and just 6.9% own rental properties.

See Figure 2 from the Wealth of Households 2020 to get an idea about how your household compares to other Americans.