401(k) Low Risk Choices – What Now?

OK, plan fiduciaries, now that U.S. Treasury yields average 1% on the 10-year note, what are you going to provide for employees in the way of low risk investment options?

More to the point, what are your older participants supposed to do to protect their retirement savings and continue to grow their retirement nest egg?

Having most of the money in bonds may mean an upside of little more than 1% interest and when rates go up again, most bond prices will go down, initially offset by only  1% interest. Bonds may now offer more risk than reward.

In a 2020 target date fund, the bond portion may provide more risk than your participants expect, leaving them with risk assets (stocks) and more risk assets (bonds with falling prices).

It might be time to talk about your investment options.

You might want to talk to Dave Hoshour for ideas.

This entry was posted on Monday, August 3rd, 2020 at 3:21 pm

What is Most Important in a 401(k)?

What are the most important things in a 401(k) retirement plan?

What companies say – 

  1. Employees understand and like the plan
  2. Good employee participation
  3. Good investment choices
  4. Reasonable costs
  5. Good vendor service and communication

What regulators say – 

  1. Plan is run in the sole best interest of participants
  2. No self-dealing on the part of plan fiduciaries
  3. Prudent, documented oversight by fiduciaries
  4. Reasonable costs that are benchmarked on a regular basis
  5. Money is properly allocated in a timely manner

What employees say – 

  1. Easy to understand
  2. Good company match
  3. Good investment choices
  4. Help with understanding what investments to choose
  5. Help with knowing how much to contribute

How is your plan doing on these metrics?

This entry was posted on Monday, August 3rd, 2020 at 2:53 pm

Economic & Market Commentary 2Q 2020 w Charts


The economy continues to rebound, but the rebound is far from evenly distributed and has been thrown more in doubt by the huge surge in COVID 19 cases the last month and less in doubt by the news that the trials of Moderna’s vaccine produced very strong results in testing and appears to be quite effective at getting the body to produce antibodies against the COVID 19 virus.

Industrial production

Industrial production has had the roughest time rebounding as witness the following chart.

Believe it or not, industrial production did not dip as low as 2009 and the pace of recovery is much faster, but it is very unlikely to continue at the present pace for very long and I expect that super-skinny V to widen out a good bit. If you are fortunate it will take less than the six years it took last time, but it would surprise me if took less than thee years and if the last bit of recovery doesn’t prove to be stubborn.

Consumer Spending

Consumer spending, which is as you have probably heard 100 times, is 2/3 of the economy, is rebounding very nicely. It may not surprise you to learn that online purchases are actually higher than at the start of 2020. In-store purchases, represented by the code “card present” in the second chart below, are more than halfway back already, though tailing off a bit with the resurgence in COVID cases.











Jobs are necessary for spending and production to increase for more than a blip. There the news is not as positive in terms of recovery. Jobless claims are definitely going in the right direction but are not even close to halfway recovered like we are seeing with spending.

If that seems odd, recall that 60% of those laid off are receiving more in stimulus checks than they were getting in wages. It appears that Rep. Pelosi is firmly committed to continuing that in a new aid package being considered and while the White House is apparently opposed, my guess is that Congress will prevail again. It should not surprise anyone if while providing welcome relief to those who do not have jobs to go back to, it is a drag on the pace of people returning to work. I’ll let you debate the merits of that over the dinner table.

Consumer Real Estate

On the other hand, there is trouble in residential income real estate. This chart of the confidence renters have in terms of making their rent payments is pretty alarming. I’m not sure whether to be more concerned for the renters, the landlords or the holders of residential mortgage paper. Remember that is not necessarily banks, because banks typically make the loan, take the fees, and sell their mortgages in packages. If your bank still holds your mortgage, that is fairly unusual these days.


This is the other shoe in terms of the economic impact of COVID policies. I don’t have a chart on personal bankruptcies, but I do for corporate bankruptcies and it is not pretty, basically on par

with 2009. Bankruptcies should be to some extent a trailing indicator and I think you should expect this number to continue upward, surpassing the number seen in the 2008-2009 recession. It just takes time for businesses to throw in the towel and it we keep getting reports of retailers closing down all their stores, whether it is Pier 21, Penny’s or Macy’s. The decline of the shopping mall, especially those that are not upper end in terms of tenants will accelerate as a tremendous amount of anchor tenant space become vacant hulks.

Outlook for the Economy

The outlook for continued recovery depends greatly on the control of COVID 19. That depends a lot on quarantining, wearing masks, avoiding contact with those most at risk, whether or not school’s resume in-person instruction and how many people are vaccinated when the vaccine becomes available.

Here is the percentage of people wearing masks in public from June 29 to July 5. It has likely ticked up some and with more corporations requiring it, will likely increase some more. At this point, it does seem that the Administration is open to a national requirement.

Now, if no more than half the population is wearing masks now, what do you suppose the vaccination rate will be? It will depend a lot on who is president in January, how many corporations require vaccines for their employees and how many parents vaccinate their children. My guess is that in the first six months, no more than 60% will be vaccinated and it will not surprise me if that proves to be optimistic. Eventually, it may be closer to 75% but I have my doubts about that. That likely means that COVID is a factor longer than many people are hoping for and to the extent that is true, the recovery will take longer as well.


As I mentioned last time, my clients have generally done well in the face of the biggest economic blow since the Great Recession. Most are somewhere between -5% and +5% for the year to date, with the higher end generally represented by my more aggressive clients for which we bought more individual stocks when they were low in late March and early April.


Our bond funds have disappointed me, with most slightly under water for the year to date because they have been light on government securities which is the portion of the bond market to show the best returns by far. But, with U.S. Treasury rates at the rate of inflation or below, who can blame them? I certainly don’t want to chase government bonds now so we will stick with our funds that have very good long term records, though of course past results are not guarantees of future returns.

Income Alternatives

The past few months show why I think it is important to diversify, especially when it comes to income investments. Blackstone is our largest real estate holding and it is down only slightly on the year and its worst month was not bad at all, especially compared to high yield bonds or stocks.

Accredited investors, those with at least $1 million in liquid net worth and with sufficiently large accounts with me to be able to reasonably invest in Strategic Wireless Infrastructure Fund did not see a drop at all. That continues to be one of the investments I am most pleased with.

Those in the Blackstone GSO Secured Lending Fund have seen a slight drop in price but all of the loans in the portfolio are current in their payments so the drop is strictly tied to market pricing. Since the loans are expected to be held to maturity and to generally be paid off within three years, I am not at all worried about short term pricing swings.


Here is a year-to-date map of the stocks in the S&P 500 index. The size of the blocks represents the relative sizes and weights of the companies in the index. Gee, anything jump out at you?

Yes, Amazon, Apple, Microsoft, Google and Facebook dominate the index, both in terms of size and performance. If you look closely, you can see the larger sections for the industries like tech and health care and you can see that the best places to be this year have been tech, health care and retailers with a large online presence or involved in home and garden.

Style Sectors

Here’s another way to look at it. Again, the conclusion should be obvious as to which parts of the U.S. stock market are doing best. I have used the Morningstar Style Box format and filled it in and colored it with returns from several Russell indexes to illustrate returns. These are YTD returns through July 15, 2020. Data is from Morningstar.


Since the five big growth stocks dominate the large cap growth category and spill slightly into the midcap growth box, you can see how this correlates with the map of the market I showed above.


 My investment strategy obviously varies by client. For conservative investors, it is a time not to panic. The worst thing to do earlier this year when stocks and bonds were down was to sell out. I still believe that it is generally better to ride out most market swings and that when things are dropping quickly is nearly always the wrong time to be selling. Diversification is usually your friend and timing is usually your enemy.

For moderate and growth-oriented investors, there are still discounts on good companies but the easy money has been made. Some of the hottest stocks in the recovery have seen some profit-taking lately. Market leaders are still leading but their valuations are getting pretty pricey. Whether they will get even more pricey is hard to say.

The gap between pricing on what many people call value stocks and the fastest growing companies is at historic levels. That will of course correct but the timing is extremely difficult to get right. Market trends can go far past what a level-headed investor might consider reasonable.

For my part, I like to stick with what’s working until the trend turns, so I generally continue to emphasize large and midcap growth stocks with some weighting in large cap core as represented by the S&P 500 Index, though that is obviously being dragged over toward the large cap growth category by the outperformance of the most heavily weighted stocks in the index being large growth stocks.

As always, let me know if you have any questions, concerns or if your financial or life circumstances have changed significantly.

Thanks to Liz Ann Sonders, Chief Market Strategist at Charles Schwab, for her amazing twitter feed which is the source for every chart here other than the map of the market and the style box chart. Also note that mention of any specific investment does not constitute a solicitation to buy it.

Dave Hoshour

This entry was posted on Sunday, July 19th, 2020 at 4:38 pm

The Best News You May be Missing

I am the lone conservative in my family. I also subscribe to the NY Times, a high quality paper that I find aggressively and pervasively anti-Conservative. While I find that very annoying, I read it anyway because I want to be informed.

If you are a liberal, I encourage you to do the same from the other side. If you’re not, you should also listen up.

Many people assume the Wall St Journal to be a boring digest of financial news for those in the industry. While the third section is on markets and finance, the WSJ is actually a very rich source of fairly balanced news reporting and the main section is a wide-ranging news section.

The editorial section frequently has sizable op-eds from the liberal side while the paper’s editorial board puts out some of the best-written and best-documented editorials from a conservative perspective. It is always the top left editorial on the next to last interior page of the front section.

That provides some badly needed balance to the NY Times, Washington Posts and NPRs of the world – media outlets of high quality but strong anti-Conservative animosity that makes them difficult for conservatives to consume.

It seems like nearly everyone today takes in only their side’s view of the world, reinforced by their friends’ matching views, so we have two widely separated groups that don’t talk much, don’t understand each other and don’t think highly of each other’s views.

The WSJ, while definitely conservative, is much closer to the middle than the others I mentioned and a mile closer to the middle than Fox News.

The Wall St Journal has a $1 offer for 2 months of digital access or 12 weeks of both digital access and paper delivery for $1/week.

See https://www.offers.com/wsj/… and take in some intelligent conversation from the other side.

I thought today’s op-ed section was particularly good, so you might start today.

This entry was posted on Monday, June 29th, 2020 at 8:54 am

Market Update

Back into the Black, Temporarily?

As of the start of this week, many of my clients were in the black for 2020 and nearly all the rest were down some single digit percentage for the year. That is due to good fund selection by focusing on funds favoring large growth companies, good timing on buying some beaten-down high-quality stocks and good stock selection on those purchases. It is also helped by diversification into non-stock market investments that did not go down nearly as much as did stocks, though they have not recovered as quickly either.

But, just as the S&P 500 index, a major barometer of large stocks, got back to breakeven for the year, we are starting to see some profit-taking. This should not surprise anyone. What is surprising is how fast that index erased a major downturn (known as a bear market). It took less than 60 days, by far the fastest stock market recovery from a bear market ever. Of course, the downturn was remarkably fast too.

Why has the Market Been so Strong?

So what has made the stock market go up so much since late March? It seems ironic that it should happen as unemployment numbers that were around 4% in February, soared to 14%, and by the Labor Department’s admission, if they had been correctly reported, would have shown 17% unemployment. Those are numbers you and I probably never thought we would see in our lifetime, numbers far worse than even 2008-2009, numbers that seem straight out of the Great Depression of the 1930s with its long soup lines, widespread bankruptcies and countless other woes.

The answer from many people is that the stock market is a forecaster, looking ahead at least 6-12 months and that it reacts to what investors believe will happen that far out. That may be part of the answer, but another major component is that the Federal Reserve has again flooded the world with newly created money, money it creates by buying bonds with its blank checkbook. That money goes to banks in a process that is mysterious to most investors, but it is the major reason, in my opinion, that the stock market went up so much after 2008 and has done so again in 2020.

That money is designed to be loaned by banks and spent by corporations and individuals to bolster the economy. But, when economic uncertainty is high and corporate chieftains are unwilling to spend, and when stocks are rising at the same time, much of that money finds it way into buying stocks and other investments. I am certainly not complaining, nor are clients.

Who’s Afraid of Debt?

At the same time, the U.S. Treasury is borrowing an additional $3 trillion dollars this year to pay for the stimulus packages passed so far, with talk of another package on the way. For perspective, the IRS collected $3.5 trillion in taxes last year while the federal government spent $4.4 trillion. Of course, tax revenues will be lower this year due to lower personal income and corporate profits, so that gap will widen a lot; then add to it however many trillions we eventually spend on stimulus with no revenue to pay for it. So, in one year, after essentially mandating a huge recession, the government in an attempt to soften the blow is going to spend somewhere between $7.5 and $10 trillion and probably collect less than $3 trillion.

Who Buys All This Debt?

Who buys all this debt? Most people think China, but that is far from correct. China is the U.S.’s largest creditor, but it only holds 5% of U.S. debt, according to Investopedia.

I’ve written this before, but the largest holder and buyer of U.S. debt by far is…wait for it…the U.S. government. Specifically, it is the Federal Reserve, once again bringing out that blank checkbook. As of May, the Fed owned nearly $7 trillion in U.S. government securities and it is buying more as fast as it can.

How long can this go on? As long as the Fed wants and the U.S. can afford to pay the interest on the debt. Don’t ever doubt that keeping that interest rate extremely low is a major reason why the Fed has promised to keep interest rates low. And even if the interest needing to be paid every year is skyrocketing, for the time being, other countries are doing the same thing and nobody seems concerned yet that spending far exceeds income. Don’t try this at home.

What’s Ahead?

States are unwinding their restrictions at an uneven and confusing pace depending mainly on the governor’s party affiliation, and people are coming back to formerly “non-essential” stores and jobs, hair salons (women are thanking God) and some restaurants. Flights are still 80% below capacity but on the way back up, and students are expecting to start school early in many places.

I do think there is a good bit of pent-up demand but that there are a lot of people who are going to take it slowly. And of course, 1/6 of workers have been without a job, though not totally without income. Not all of those will have jobs to come back to this year and that will certainly dampen consumer spending by quite a bit for the next few months and probably for a couple years or more. That’s why the best performing sectors of the market this year have been largely non-recessionary – tech, health care and energy (bouncing back from super-low oil prices.)

I do think the pullback today could be several percent for the overall market and double-digit percentages for the hottest stocks. We’ll have to see how things develop.

This entry was posted on Thursday, June 11th, 2020 at 10:41 am

Extreme Volatility

Extreme Volatility

Why is the stock market falling or rising 5% and 10% in a day over and over? Is it panic selling?

Yes and no. Some people are selling because they believe the economy is going into free fall and corporate profits will fall a lot. Others are selling because it is now just about certain that we will have some sort of recession. Still others are wanting to sit on the sidelines because there is so much uncertainty as to severity and time. Some are selling because they are trying to protect what they have.

Computer Selling

But others are selling because computer algorithms tell them to sell when selling is heavy and to buy when buying is heavy. These sellers have lots of money to work with and they are making volatility worse, much worse.

Now, computer-generated heavy selling is as old as the 1987 drop in the market. Back then, they called it portfolio insurance and it didn’t protect anyone, just the opposite. But today, an incredible amount of the volume on the stock exchange is computer-driven.

Consider this. Trading volume on Black Monday, 1987 was 604 million shares, a record-shattering number. In 2018, the average daily trading volume was 547 billion shares, nearly 1,000 times the volume. Meanwhile, the U.S. population is 33% higher. You tell me how much computers dominate Wall St. Just remember, computers don’t write their own programs, and what the traders behind these programs are often trying to is profit very, very short-term, sometimes even in milliseconds.

Opportunistic Buying

Thank God, there are still sizable investors like mutual funds that still invest long-term. Warren Buffet is still making money and not by the millisecond, and you can place a high-odds bet that he is buying now because that’s been his strategy – buy when the market is down. Good strategy.

If you’re already fully invested, consider replacing some positions with others that might have more potential because they’ve been oversold. Think about oil companies, home builders, airlines, cruise lines, REITS, health care, banks and various other industries that have some quality stocks on sale for 50-80% off. Be careful to buy high quality businesses with solid financials. Some that had so-so dividends have terrific dividend yields now that their stocks have dropped. I make no specific recommendations online, just my thoughts as someone who’s been around awhile.

This entry was posted on Sunday, March 22nd, 2020 at 12:32 am

Privacy & Control

Ever posted a picture of yourself online? Chances are your face is now in the files of Clearview Facial Recognition, a  company that has software that allows police to track down criminals. That’s a good thing, but it is built using a database of many millions of pictures from Facebook and all sorts of websites where people innocently posted pics as a way to share their life with “friends.” That software and database means any subscribing institution can track you wherever you go, whether you have a criminal history or not.

The central banks of numerous countries from Sweden to China are testing national digital currencies and the idea has also been floated for our Federal Reserve. It would speed up payments and give the Fed more control over the effectiveness of its monetary policy. Another upside is the possible shrinking of black market currency exchange used by criminals. The downside? Every dollar you spend and where you spent it would be in a government database. No wonder the Wall St. Journal ran an article recently about how governments all over the world are scratching their heads over why so much paper money has disappeared from circulation in recent years.

You are already known in amazing detail because of the advertising revolution created by Google in which all your searches, website visits and purchases are tracked in order give a great deal of insight into who and where you are, something advertisers covet, hence Google’s tremendous success. But, it also means that digital privacy has virtually become an oxymoron.

There is a lot of talk about socialism in America today and its egalitarian promise necessarily means increased government control, which has been the trend for several decades now. Whether or not you support that is not the issue, the issue is that political correctness is being increasingly and more harshly enforced as government extends its reach.

The Bible very clearly predicts that there will come a time when it will not be possible to buy or sell without proof that you support a certain world government that will be overtly hostile toward biblical Christianity. I can very easily foresee a time when Christians could be shut out of the public marketplace, even tracked down and imprisoned. That may not be as far off as most assume, especially given that as the divide between liberal and conservative has swiftly widened, public attitudes toward evangelicals have been rapidly worsening and the price of holding those beliefs rapidly increasing.

There are measures you can take to minimize your digital footprint, but it is probably too late now. Technology can be a wonderful thing but its effectiveness is agnostic toward the purposes for which it is used. That will at some point in the not very distant future mean big trouble for some law-abiding citizens, and many will be surprised at the speed at which it arrived.

This entry was posted on Monday, February 24th, 2020 at 9:14 am

DOL – Meeting Your Fiduciary Responsibilities

The Dept of Labor, which oversees retirement plans, publishes a brochure entitled Meeting Your Fiduciary Responsibilities, i.e. those that come along with oversight of a retirement plan. While the DOL has published a lot and there is a lot to keep up with, this is a pretty simple and straightforward introductory brochure that I highly recommend as a starter.

You’ll see that anyone that has a say in how the plan is managed or who is hired is a fiduciary with attendant responsibilities and liabilities. It matters not who signs the 5500 form or who does the research, everyone with a vote is a fiduciary, so all who do should read this.

Pay particular attention to:

pg. 3 – Limiting Liability
pg. 5 – Hiring a Service Provider
pg. 6  – Monitoring a Service Provider

You’ll notice that the DOL, like all government agencies and auditors is big on documentation. In the DOL’s case, special emphasis is put on the oversight process and reasonable fees.

If you’d like help on understanding your responsibilities, how best to go about that and how to properly document it in order to stay on DOL’s good side (a good idea), let me know.
This entry was posted on Tuesday, January 21st, 2020 at 2:10 pm