We often hear that a “fiduciary” is simply someone who doesn’t sell commissioned products and hates annuities. While that is a good starting point, the definition of a true fiduciary goes far beyond how they are compensated—it is about how you are served.

Serving as the steward of a family’s wealth is a privilege. However, I speak with many investors who believe they are getting fiduciary care, only to find their financial interests are taking a backseat to a firm’s standardized model.

How can you tell if your advisor is truly acting in your best interest?

Here are a few red flags that suggest you might be part of a sales machine rather than a comprehensive financial plan:

• The Taxable Account Trap: You open your statement and see hundreds of individual securities in your taxable account, yet your retirement accounts hold the tax-efficient ETFs. Not only is this backward, this often results in a “surprise” 6-figure tax bill due to high turnover. A true fiduciary cares about your after-tax return, utilizing strategies like tax-loss harvesting or 351 exchanges to manage customized positions.

• The Missing Safety Net: You are a few years out from retirement, yet there are no bonds or alternatives in your account. While we want growth, an “all-weather” portfolio requires diversification, such as gold, private credit, or short-term treasuries, which protect you when headlines turn volatile. Being 100% in equities near retirement isn’t a strategy; it’s a risk.

• The “Check-In” Call: Your advisor calls you on your birthday, your anniversary, and even your kids’ birthdays just to “check in.” But they never answer the hard questions: “When can I retire?”, “What is the most tax-efficient way to take a distribution?”, or “How do I prevent my wealth from ruining my kids lives?”.

The Reality Check Real wealth management is not just about beating a benchmark; it is about aligning your portfolio with your life. It involves proactively planning for tax changes, managing liquidity for major purchases, and ensuring your estate plan is sound.

If your advisor is great at remembering dates but absent when it comes to actual financial planning, it might be time to ask if they are truly a fiduciary—or just a friendly asset manager.

Let’s ensure your financial plan remains aligned with your real-life needs for 2026.

Keep calm and invest,

Nirav

Dear Clients and Friends,

Thanksgiving offers us a brief moment to tune out the noise of the markets and reflect on the relationships that define our work together. Serving as the steward of your family’s wealth is a privilege I hold dear, and I am deeply grateful for the confidence you place in me. This season serves as a welcome reminder that while economic landscapes may shift, the strength of our partnership and our shared commitment to your long-term goals remain the steady constant.

I wanted to take this moment to share a brief update on the economy, review how your portfolio has weathered the unique challenges of 2025, and outline our thinking for the year ahead.

The Economic Landscape: Navigating a Year of Disruption

2025 has been a year of resilience, but also one of significant friction. While third-quarter GDP grew at a solid 2.7%, the economy is currently digesting several major structural shocks that have introduced new uncertainties for 2026:

• The Consumer is Tapping the Brakes: We are seeing the first concrete signs of a slowdown. The Conference Board’s Consumer Confidence Index dropped sharply in November (falling to 88.7), and retail sales growth has cooled significantly (just 0.2% growth last month). Combined with a softening labor market—where the unemployment rate has ticked up to 4.4% and job openings are becoming scarcer—it is clear that the “average” American family is tightening their belt heading into the holidays.
• Fiscal & Political Headwinds: We are just emerging from a historic 43-day government shutdown. While the government is now funded through January, the resolution left key issues unresolved—most notably, the expiration of ACA (Affordable Care Act) subsidies. If these lapse at year-end as scheduled, millions of Americans could see healthcare premiums double, further dampening spending in Q1 2026.
• Federal Restructuring (“DOGE”): The aggressive cost-cutting measures by the Department of Government Efficiency (DOGE) have led to widespread reductions in the federal workforce. While intended to streamline operations, the sheer scale of these firings has disrupted federal contracts and introduced volatility into labor data.
• Trade Tensions: Renewed tariff policies—and retaliatory measures from trading partners—are keeping inflation “sticky” at around 3.0%. This complicates the Federal Reserve’s ability to cut rates further.

Portfolio Performance: A Global Success Story

Our portfolios are constructed to be an “all-weather” vehicle, designed to find growth even when the U.S. headlines are dominated by political strife. This year, that diversification paid off in a major way, particularly in areas many investors ignored.

The Standout Stars: International Value

Despite the headlines regarding tariffs and a strong dollar, our international holdings were the clear winners of 2025. 

This validates our belief that starting valuations matter more than political rhetoric. 

As the gap between expensive U.S. stocks and cheap international stocks began to close, our specific exposure to “value” and “profitability” factors surged:

• International Small Cap Value: Skyrocketed +43% YTD.
• International Large Cap Value: Delivered an impressive +36% YTD.
• Emerging Markets Value: Returned +27% YTD, shrugging off trade concerns to deliver robust growth.

Core Performers & Alternative Winners

• Long/Short Equity: A standout performer, up over 18% YTD. Its active management style successfully navigated the volatile equity landscape, outperforming the broad market indices.
• Gold Miners: With central banks buying gold at record rates to hedge against U.S. fiscal uncertainty, our miners’ exposure saw exceptional growth, up 30% since we entered a position over summer.
• US Wide Moat Equity: Our anchor position in high-quality U.S. companies with sustainable competitive advantages returned a solid 11% YTD. While it didn’t chase the most speculative highs of the AI bubble, it provided reliable double-digit growth and stability in the core of your portfolio.
• Income Anchors (FORAX & CAPIX): In a volatile yield environment, our private credit and real estate debt strategies delivered consistent returns in the 9% range YTD, acting as the ballast in your portfolio.

Areas of Divergence

• Commodity Managed Futures: This strategy remained flat for the year. Despite rising commodity prices generally, the market trends were incredibly choppy—whipsawed by tariff headlines and geopolitical announcements. This lack of sustained momentum made it difficult for trend-following strategies to capture gains. However, we retain this position as insurance; it remains one of the few assets that historically spikes when traditional markets crash.
• COWG (Large Cap Cash Cows Growth): High-quality U.S. cash flow companies returned only 4.1% YTD. In a U.S. market driven almost entirely by speculative momentum, this “middle ground” of disciplined quality was temporarily neglected. We believe these companies remain the most prudent hold as the economy slows.

Looking Ahead: Positioning for 2026

As we look toward the new year, we remain confident in the resilience of the global economy, but maintain a cautious outlook.

The combination of expiring ACA subsidies and the ripple effects of the DOGE restructuring suggests we should prepare for “rocky” markets in early 2026.

In addition, the US stock market is dominated by intense concentration risk in the top 10 stocks – more so than any other time in history, including 2000 and 1929, which were followed by major stock crashes and extended bear markets.

Maintaining our “all weather” allocation is particularly crucial at this time.

We have successfully captured massive upside in foreign equities and in hard assets, while maintaining a defensive core position and necessary insurance allocation. 

We believe this balance is critical as we enter a year likely defined by slowing consumer spending and continued political friction. 

As we approach year-end, it is an excellent time to ensure your financial plan remains aligned with any changes in your personal life or liquidity needs for 2026. If you envision any changes in your situation, feel free to set up a time to connect over the few weeks.

Thank you again for your continued partnership. I wish you and your family a Thanksgiving filled with warmth, joy, and abundance.

Warmly,

Nirav Desai

This newsletter comes from the tropical Grand Cayman islands in the Caribbean. I’m sitting next the the beach, with its white sands, and turquoise waters. It’s 90 degrees with 90% humidity, and I’m slathered with SPF 50!

But there have been some major updates in the tax code that can’t wait, so I wanted to provide a simplified version of how the 900 page bill impacts you.

The One Big Beautfiul Bill Act (OBBA), signed on July 4, 2025, is officially named the Omnibus Budget Reconciliation Act of 2025, and it contains sweeping changes that will impact your taxes, investments, healthcare, and estate plans.

The primary goals of this act were to make many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) permanent while also introducing a new set of economic priorities. Understanding these shifts now is crucial for proactive financial planning.

The following are the most critical changes to note:

1. Permanent Changes to Individual Taxes

A major function of this bill was to prevent the widespread tax increases that would have occurred if key parts of the TCJA had expired. The following are now permanent law:

• Individual Tax Rates: The lower individual income tax rates from the TCJA are here to stay, providing long-term certainty for income and retirement planning. The top rate remains at 37% instead of reverting back to 39.6%.
• Higher Standard Deduction: The larger standard deduction is now permanent. For 2025, it is set at $31,500 for married couples filing jointly and $15,750 for single filers, adjusted for inflation annually.
• The 20% QBI Deduction: The crucial 20% deduction on Qualified Business Income (Section 199A) for pass-through businesses (S-corps, partnerships, sole proprietorships) has been made permanent, a significant victory for entrepreneurs. This includes REIT dividends, as well as interest income from certain types of Real Estate Loans (including the fund we own in client portfolios).
• Estate Tax Exemption: The act permanently sets the estate and gift tax exemption at a $15m and $30m for married couples, effectively eliminating federal estate tax concerns for most families. Without this change, it was set to revert back to the lower level of approximately $4m and $8m.

2. New (and Temporary) Tax Breaks for Individuals

The Act introduces several new, targeted tax deductions. It is critical to note that most of these are temporary and are set to expire after 2028.

• No Tax on Tips & Overtime: For tax years 2025 through 2028, deductions are available for qualified tip income (up to $25,000) and for the premium portion of overtime pay (up to $12,500 for single filers, $25,000 for joint filers). Both deductions are subject to income phase-outs.
• Additional Deduction for Seniors: Individuals aged 65 and older receive a new temporary bonus deduction of $6,000, which also phases out at higher income levels.
• Auto Loan Interest Deduction: A temporary deduction is available for interest paid on loans for new passenger vehicles where final assembly occurred in the United States. This is limited to $10,000 per year and is subject to income limitations.

3. Major Changes to Healthcare and the SALT Deduction

• SALT Cap Relief: In a significant but temporary change, the State and Local Tax (SALT) deduction cap is increased from $10,000 to $40,000 for taxpayers with income below $500,000. This higher cap is effective for tax years 2025 through 2029, after which it reverts to $10,000. This creates a critical multi-year window for strategic tax planning for those in high-tax states.
• This deduction phases out for a married-filing-jointly (MFJ) with income between $500k and $600k, beyond which it drops down to $10,000. For each dollar of income over $501k, you lose 30 cents of the deduction. This creates a weird situation,  where $1 of income increases taxable income by $1.30. This pushes the marginal tax rate to 45.5% between $501k and $600k for anyone who itemizes, either due to high property or state taxes, a high interest mortgage, or large charitable contributions. If you have interest income that falls in this income range, you will also owe 3.8% NIIT, pushing your marginal tax bracket to 49.3%. For these high income earners, critical tax planning can have an outsized impact on lowering taxes.
• Healthcare & Medicaid: The law enacts significant long-term spending cuts to Medicaid and reduces Affordable Care Act (ACA) subsidies. It also introduces work requirements for certain Medicaid recipients and makes changes to eligibility for some immigrant populations. These changes could increase out-of-pocket healthcare costs for many, negatively impacting your financial planning goals.

4. Business and Energy Tax Overhaul

• Bonus Depreciation Restored: For business owners, the act permanently restores 100% bonus depreciation for qualified property, a powerful incentive to invest in new equipment and other assets. This will allow for outsized deductions for small business owners as well.
• Repeal of Green Energy Credits: The law repeals several popular Inflation Reduction Act (IRA) tax credits aimed at individuals, including those for new and used electric vehicles (EVs) and residential clean energy projects. The financial calculations for making these purchases have now fundamentally changed. If you were planning on adding solar panels to your roof or buying an EV, your window to make the purchase and get a tax credit is very small!

Your Path Forward: Navigating the New Landscape

This new legislation creates a complex environment of permanent tax certainty, temporary opportunities, and significant policy shifts. The temporary nature of the new deductions and the expanded SALT cap creates a critical window where proactive planning can yield substantial benefits.

I advise all high-income clients to schedule a dedicated strategy session with me to:

• Analyze how these permanent and temporary changes impact your specific financial picture.
• Develop a multi-year strategy to take full advantage of the temporary SALT cap relief.
• Review your business and estate plans in light of the new rules.

Please use this link to schedule a time for us to connect.

The Qualified Opportunity Zone (QOZ) program is undergoing significant changes, primarily driven by proposed legislation like the “One Big Beautiful Bill Act” (OBBBA) in the US Congress. While some details may vary between the House and Senate versions, here’s a summary of the key new rules and proposed changes:

1. Permanence and Re-designation of Zones:

• Permanent Program: The QOZ program is expected to become a permanent fixture, eliminating the previous sunset date for new investments (originally December 31, 2026).
• Decennial Re-designation: New QOZs will be designated every 10 years, starting July 1, 2026, with effective dates for investments beginning January 1, 2027. This means states will propose new zones, and the Treasury Secretary will certify them, ensuring the program continues to target areas of need.
• Stricter Eligibility: The criteria for designating “low-income communities” are becoming stricter. The median family income threshold for a tract to qualify is expected to drop from 80% to 70% of the area or statewide median. The provision allowing contiguous non-low-income tracts to be designated is also likely to be eliminated.

1. Investment Deferral and Basis Step-Up:

• Extended Deferral: For investments made after December 31, 2026, the deferral of capital gains tax will be extended, with a rolling five-year deferral period. This means the deferral will no longer be tied to a fixed date like December 31, 2026, but will be five years from the date of investment.
• New Basis Step-Up Schedule: The current 10% basis step-up after five years and 15% after seven years will be revised. For investments made after December 31, 2026, a 10% basis step-up will be available after five years.
• Ordinary Income Investments: A significant new allowance is the deferral of up to $10,000 of ordinary income invested in a Qualified Opportunity Fund (QOF) after December 31, 2026.

1. Emphasis on Rural Zones:

• Rural QOZ Set-Aside: A notable change is the push to designate more rural QOZs. At least 33% of new QOZs are expected to be in rural areas.
• Enhanced Rural Benefits: Investments in “Qualified Rural Opportunity Funds” (QROFs) will receive additional incentives:
• Increased Basis Step-Up: A 30% basis step-up will be available for qualified rural investments held for at least five years, significantly higher than the 10% for other QOZ investments.
• Reduced Substantial Improvement Requirement: For rural projects, the “substantial improvement” requirement (which generally means investing at least 100% of the building’s adjusted basis into improvements) will be reduced to 50%, making it easier to rehabilitate existing properties.
• Definition of Rural: Rural QOZs are generally defined as areas outside cities or towns with populations over 50,000 and not adjacent to urbanized areas.

1. Increased Reporting and Penalties:

• Expansive Reporting Requirements: Both Qualified Opportunity Funds (QOFs) and Qualified Opportunity Zone Businesses (QOZBs) will face significantly increased reporting requirements. This includes details like the average number of full-time equivalent employees, NAICS codes, and information on residential units.
• Non-Compliance Penalties: Stiff penalties for non-compliance are being introduced, potentially up to $50,000 for larger QOFs, with higher fines for intentional disregard of reporting requirements. All reports must be filed electronically.

1. Other Important Changes:

• Elimination of 2047 Cliff Date (for new investments): For qualifying investments in QOFs made on or after January 1, 2027, the previous December 31, 2047, deadline for selling the investment to achieve the tax-free gain benefit is eliminated. Investors will have the option to step up their basis to fair market value after 30 years.
• No Forced Exit from OZ Investment: This means investors who hold their QOZ investment for over ten years will not be forced to sell by a certain date to realize the tax-free gain on appreciation for investments made after December 31, 2026.
  It’s important to note that while these changes are largely expected to be enacted, specific details and effective dates can still be subject to legislative finalization. Investors and fund managers should stay informed about the precise language of the enacted legislation to ensure compliance and maximize benefits.

As I mentioned in my previous post, April saw record levels of volatility in the stock market. 

The severe market swings weren’t just a knee-jerk reaction to tariffs, but rather a reaction to major shifts in the global economic landscape.

The global economic landscape is changing in significant ways that require thoughtful adjustments to your investment strategy. Recent trade policies are creating ripple effects throughout the global economy that will impact long-term investment returns.

Key Developments Affecting Your Investments

Shifting International Relationships

The current tariff policies are straining relationships with key allies. These actions, intended to bolster domestic industries, are inadvertently pushing some of our closest partners towards nations that are traditionally considered U.S. competitors. This realignment extends far beyond simple trade balances and affects global capital flows.

America’s Changing Economic Position

For decades, the U.S. dollar’s status as the world’s primary reserve currency has provided our economy with significant advantages, including lower borrowing costs.

 The trade deficit with our trading partners resulted in their accumulating a surplus of U.S. Dollars. These U.S. Dollars were used to buy down U.S. Treasury bonds, pushing down borrowing costs for not only the U.S. Government but also for U.S. home owners, as our mortgage rates are tightly correlated to the yields on 10-year Treasury bonds.

These dollars also found their way into the U.S. stock market helping prop up stock prices.

However, as our relationships with allies become less certain and international trade policies create instability, this privileged position is beginning to weaken.

Foreign investors are becoming more hesitant to invest in U.S. stocks and bonds. 

We saw evidence of this immediately after the tariffs were announced on “Liberation Day”, when long-term yields spiked as foreign holders of US Treasury bonds decided to sell first and ask questions later. 

We also saw a sharp drop in the prices of U.S. stocks as international investors started to trim their exposure. 

For the past decade, global investors and pension funds from Europe, Asia and Australia have all been buyers of U.S. stocks. As a result U.S. stocks trade at much higher multiples than their counterparts in other developed countries. Investors pay 50% more for each dollar of earnings for U.S. stocks than we do for similar non-U.S. stocks. This premium for American exceptionalism was based on 75 years of economic and political stability. However, this perception of stability among international investors is now fading.

U.S. retail investors have stepped in to buy the dip, which has driven a significant recovery in stock prices. 

So while not immediately alarming, this trend poses meaningful long-term risks to our portfolios if left unaddressed.

The Potential Impact on Your Investments

If foreign investment in U.S. assets continues to decline, we can expect:

• Weaker Dollar: As investors move away from U.S. dollar assets, imports will become more expensive, further driving inflation
• Higher Inflation: Less demand for U.S. debt will likely lead to higher interest rates and coupled with increased inflation, reduce purchasing power over time
• Reduced U.S. Market Performance: Lower capital inflows may limit economic growth and lead to underperformance of U.S. markets compared to international alternatives

Recession risks are also increasing. 

The lack of clarity around the trade and tariff policies is preventing businesses from being able to forecast their inventory, spending or hiring needs. 

American Airlines just announced their earnings, and they provided 2 projections for the rest of the year. One in case of a recession, and another without a recession. We are going to see many more companies offer similar projections because they have no visibility. 

Unlike larger businesses, with massive teams of analysts, small businesses do not have the man power to project multiple scenarios, nor do they have the liquidity or credit lines to survive extended periods of uncertainty. There are over 30 million small businesses in the US who will feel the pain of tariffs, higher interest rates and an economic slowdown. They will be more affected by a recession than the larger companies.

If we do enter a recession, we are likely to see considerably more volatility in the stock market for the remainder of the year.

Our Recommended Strategy Adjustments

To protect and grow your wealth in this evolving environment, we have:

1. Increased cash allocations: In the short-term, we have been raising cash every time the market rallies. This will be reallocated to short-term treasuries, private credit funds and other global investments.
2. Increased Global Investments: We’re strategically adding more international developed and emerging market assets to your portfolio. These regions offer strong growth opportunities, appealing valuations, and valuable diversification.
3. Moderately Reduced U.S. Equity Exposure: We’re carefully decreasing your allocation to U.S. stocks. We still maintain significant U.S. market exposure, but at a more balanced level given the changing global landscape. We have also increased allocation to a private infrastructure fund, a thematic investment which is also expected to have lower volatility than the overall market, and a  long-short equity fund as well. The risk of recession is severely heightened this year and a long-short fund will act as a hedge without sacrificing our exposure to U.S. stocks in case we are wrong.
4. Maintain a short maturity of our bond holdings: We have been avoiding long-term bonds since the beginning of 2022. Most of our bonds have a maturity of under 5 years. This will prevent losses if long-term interest rates rise. We are also allocating to private credit funds, with maturity under 3 years but higher yields in the 8-10% range
5. Tax Loss Harvesting opportunities: We will continue to actively seek tax loss harvesting opportunities to potentially lower your annual tax liability. This involves strategically realizing investment losses without altering your current asset allocation. By offsetting taxable capital gains, this process aims to improve your overall tax efficiency.

This strategy shift is not a reaction to short-term market movements but rather a thoughtful response to structural changes in the global economy. Our fundamental goal remains unchanged: to protect and grow your wealth over the long term.

Next Steps

If you have any questions about these changes and how they specifically affect your portfolio please don’t hesitate to reach out to discuss your individual situation. I’m committed to helping you navigate these changing economic conditions with confidence. 

As always, keep calm and invest,

Nirav Desai

Risk Discloures: This is general information is not to be considered investment advice. Any investment included in this email whether, stocks, bonds, alternative assets, cryptocurrencies or commodities may not be suitable for all investors. Please consider your risk tolerance and talk to your advisor before making any decisions based on this email.

The financial markets have certainly been making headlines this week, with some sharp movements that might feel unsettling. I wanted to offer a bit of perspective during this period.

The past 7 trading days all saw dramatic intraday moves on the S&P 500, with sharp 4-6% declines coupled with a whopping one-day 9.5% increase as well. 

At one point, the market was down 20% from its recent peak in February. 

While the daily volatility can be scary, it’s important to remember that true market “crashes” – events that fundamentally alter the long-term trajectory – are actually quite rare. 

What we are currently experiencing is a significant dip, to be sure, but one that is not without precedent. The scale of these movements is similar to what we navigated during the initial stages of the Covid-19 pandemic. We also saw similar volatility during the 2008 financial crisis.

Each time, the market has recovered even though it was hard to live through these scenarios.

The main takeaway is to step back and look at the bigger picture.

Your financial plan has been specifically constructed to weather periods like these.

A cornerstone of our strategy is diversification. 

Your investments are carefully spread across a mix of shares (representing ownership in companies), bonds (representing loans to governments and corporations), and other asset classes. This deliberate diversification means that your portfolio is not entirely reliant on the performance of any single market sector. When one area experiences a downturn, others can provide a degree of stability and help to cushion the overall impact.

Furthermore, the very structure of your financial plan is a reflection of your individual circumstances, particularly your proximity to retirement. For those of you nearing retirement, a greater portion of your portfolio is strategically allocated to lower-risk assets, such as government bonds. These types of investments tend to hold their value, and in some cases even appreciate, during periods of stock market downturns, providing a crucial layer of protection when you are closest to needing those funds.

Volatility, while it can feel uncomfortable in the short term, is an inherent characteristic of the market. 

And history has repeatedly shown us that markets do recover. 

In the last 70 years, we have had 8 times when the S&P 500 declined 15% or more in a 30-day period.

In every case, the market recovered within 720 trading days (that’s about 2 years and 10 months), and the average return was 50% at the end of that period.

While the timing and pace of that recovery can vary, long-term investing remains one of the most effective strategies for building and growing your wealth over time. Trying to time the market during these swings is often a recipe for missing out on the eventual rebound.

I understand that these periods can raise questions and even anxieties. Please know that we are closely monitoring the situation and are here to provide clarity and support. In the next post, I’ll discuss some longer-term concerns about the economy and investments, and how to mitigate some of these concerns.

If you have any questions about your portfolio, your financial plan, or simply want to talk through the current market environment, please do not hesitate to reach out. We are always here to offer reassurance and guidance.

Staying informed and maintaining a long-term perspective are your most powerful tools during times like these. Trust in the well-diversified foundation we have built together, and remember that we are here to navigate these market movements with you.

So, as always, keep calm and invest!

I’m spending the weekend in Whistler, Canada. Although it’s not a holiday weekend, the resort is still fully booked, the ski slopes are busy and people are spending money everywhere.

And yet, after 4 years of looking for signals, and ignoring the the constant predictions from the news media, I finally see signs of an impending recession.

No, it’s not the fact that inflation has started to rear its ugly head, or the threats of tariffs or the crackdown on immigration. While all these factors could individually have a negative impact on the economy, the biggest sign is the stall in the housing market.

Residential construction and home remodeling sector is a significant 4% of the US economy. Its health offers valuable insights into broader economic trends.

Currently, we’re seeing a concerning decline in homes sales and home remodeling spending, approaching levels reminiscent of the 2009 financial crisis.

Imagine the impact in cities where housing costs are already sky-high. In these areas, the construction and remodeling industry is a major economic driver. A slowdown here means job losses, reduced local spending, and a cascading effect on related businesses.

This isn’t just about bricks and mortar; it’s about livelihoods and community stability. The current trend serves as a strong warning sign, suggesting a potential economic downturn that could have far-reaching consequences.

In other words, recession is coming.

For investors, this translates to heightened risk in related industries and a potential dampening effect on consumer spending.Consumer confidence is already declining. It’s down 10% in the past month and 16% in the past year. And when consumer confidence declines, it often leads to lower consumer spending.

When consumer spending declines, business spending and ad spend also declines.

The largest tech companies (the magnificent 7) are highly dependent on business and ad spend. They are over represented in the SP500 – a widely used proxy for the stock market – consisting of roughly 30% of the index.In growth funds, these seven stocks are held in an even higher concentration, as much as 50% or even 75%.

While high-growth tech stocks may have delivered impressive returns in recent years, the current economic climate suggests a potential shift towards greater volatility and increased downside risk.

These stocks are also considerably more overvalued compared to the rest of the stock market, and face a more drastic decline in price.

In fact, this year they have underperformed, especially against international stocks which have finally started to show some signs of life.

In light of these emerging headwinds, particularly within a sector sensitive to interest rate fluctuations and consumer confidence, a prudent approach is warranted.

But not too worry, a good defense is a well diversified portfolio with uncorrelated asset classes. And a focus on stable, established companies with strong fundamentals is crucial in navigating this period of uncertainty.

The housing sector’s decline serves as an early warning, and that a proactive, risk-aware strategy is essential.This is the time to be cautious and look at a defensive strategy.

In client portfolios, I will be slightly lowering our exposure to US public equities, replacing them with private infrastructure companies.

The US needs $1-2 trillion of spend to update our roads, bridges, ports, airports, communications and electrical infrastructure over the decade. A lot of these companies are private, and are trading at cheap valuations.

If not a client and you have one of these situations:

* over-concentrated in high-growth stocks

* have more than 25% of your networth in one stock

* are 5 years from retirement, or

* just generally worried about your financial future

Let’s discuss how these trends may impact your portfolio and explore strategies to mitigate potential risks.

So, as always, keep calm and invest!

Regards,

Nirav

Are you looking to diversify out of concentrated stock positions without the burden of capital gains?

If so, there’s an innovative strategy that might be the perfect fit for you: the 351 exchange.

This strategy allows you to contribute shares of a single stock, along with other shares or ETFs that have capital gains, in exchange for shares in a new ETF.

This approach offers several key benefits:

No Capital Gains: This strategy doesn’t trigger taxes on the gains.
Diversification: Seamlessly transition from a concentrated stock position to a diversified portfolio.
Immediate Liquidity: Unlike traditional 721 exchange funds, there is no seven-year lock-up period.
Cost Efficiency: Enjoy lower fees compared to other strategies, such as 721 exchange funds, or QOZ funds.

However, there are some constraints to follow:

But there are ways to get around these restrictions. Let’s consider a practical example.

How It Works:

Step 1: Contribute $20k of a single stock and $80k of a broad-based index fund ETF, such SPY. The individual stocks inside the ETF will all count and make sure we don’t exceed the 50% cap on the top 10 largest holdings.

In return, you receive ETF 1 valued at $100k.

Step 2: During the offering cycle, contribute an additional $25k of the single stock and $100k of ETF 1, resulting in ETF 2 worth $125k.

Step 3: During the next offering cycle, contribute $30k of the single stock and $125k of ETF 2 to receive $155k worth of ETF 3. 

Over the multi-step process, you’ve exited out of $75k of a single stock, and used $80k of other stocks/ETFs to end up with $155k in ETF 3.

ETF 3 is expected to be a diversified global portfolio of stocks, designed to replicate a strategy similar to Berkshire Hathaway, using the Shareholder Yield methodology, which combines Dividend Yield and Share Buybacks to invest in quality, cashflowing companies.

You keep your original cost-basis in the stock and ETF(s), but you are now globally diversified and have mitigated your single security/sector concentration risk without triggering capital gains.

This strategy integrates seamlessly into your existing portfolio while offering you the ability to strategically manage your capital gains. 

This process is manual and paperwork-intensive, and the next deadline is approaching quickly (11/30/2024). Although it’s expected to be offered on a quarterly basis, so don’t worry if you miss this opportunity.

If you’re interested in exploring this strategy further, please reach out to me as soon as possible. Let’s work together to optimize your portfolio and manage your capital gains effectively.

This is suitable for accredited investors with capital gains of at least $100k in any single stock.

As we navigate the evolving political landscape, I wanted to share some insights on how a Trump presidency could impact various financial markets, including U.S. and foreign stocks, bonds, Bitcoin, and the U.S. dollar.

Since the election results last week, there has been a strong rally in US stocks, especially Small-cap stocks. The markets have concluded that a Republican sweep of the Presidency, and House of Representatives and the Senate will be bullish for stocks. 

At least in the short term.

Meanwhile the rates on long-term bonds climbed even while the Federal Reserve cut interest rates again. Over the past several weeks, they’ve cut the short-term rates by 0.75% but long-term rates actually went up 0.75% during this time frame.

The bond market thinks a Republican government will be unable to lower the national debt and is worried about the government’s balance sheet.

The debt has been increasing at a much faster rate than prior decades, and since Covid, has exceeded the GDP. This is not a good trend.

As our national debt rises so does our interest cost on this debt, which continues to consume a larger portion of our government revenues (i.e. taxes).

Without a reduction in government spending or an increase in taxes (or maybe both), the bond market doesn’t think we can bring our debt back to more prudent levels. Which is why long-term rates are rising – the market wants to get paid more for the risk of holding long-term debt.

It’s highly unlikely the Republicans will raise taxes. Let’s see if they will be able to reduce spending. The bond market is skeptical.

Trump’s pet campaign promises of new tariffs on foreign goods and the reduction/deportation of illegal immigrants are both inflationary. 

Increasing the cost of imported goods is unlikely to make goods cheaper. America’s famously porous border has provided cheap labor for both the agriculture and construction industries. 

Despite the post-Covid spike in prices, our food and housing prices are still cheaper than most other developed countries and Asian countries when compared to their citizens’ income levels.

The rise in long-term rates has negatively affected mortgage rates and the cost of borrowing for many companies. 

Hopefully Trump can figure out how to make housing affordable again.

Over the long-term, this may lead to lower corporate profits and lower consumer spending levels.

Will his campaign promise of lower corporate tax rates offset this? We’ll see.

Another thing impacted by higher rates is the US Dollar. It has strengthened after the election and is likely to stay strong as long as long-term rates stay elevated.

This strengthening of the US Dollar, along with threats of imminent tariffs, has led to a weakening in emerging market stocks and a rather muted rally in foreign developed stocks.

But the difference in valuations between US and non-US stocks is rather stark. In general, investors are paying about 70% more for each dollar of earnings in the US than abroad. 

This disparity will converge at some point. It always does. 

Usually the outperforming asset class will have lackluster performance for several years while the underperforming one rallies hard several years in a row. Getting the timing right is impossible, so we maintain a globally diverse portfolio and rebalance on a regular basis, selling what is overvalued to buy what is undervalued. And we’re getting paid 4%+ in dividends while we wait.

One thing that has really seen a huge boost from Trump 2.0 is Bitcoin.

Everything bitcoin-related was up double digits today (11/8/2024). 

In general, I’m not a fan of cryptocurrencies. They are a solution for a problem that doesn’t really exist. There are many arguments for a decentralized currency but none of them apply to anyone who earns and invests in the world’s reserve currency – the mighty US Dollar.

The only real use case is to avoid income taxes, possibly avoid estate taxes, and defeat currency controls and tracking. 

However, the demand cannot be refuted. Bitcoin ETFs were approved nearly a year ago and have attracted billions of dollars in investor capital – some of it from public pension funds and family offices of extremely wealthy Americans.

The FOMO is real.

And Trump has even announced a Strategic Bitcoin Reserve, which will hold 1 million Bitcoins. This is a terrible idea. Nothing weakens US hegemony like America saying we don’t have faith in our own currency and we want to diversify away from it.

Against this backdrop, my own reservations notwithstanding, I’ve initiated a small position in a Bitcoin ETF in client portfolios. It’s part of our alternative sleeve, which is invested in funds that are expected to be uncorrelated to stocks and bonds. I expect this insanity to continue for a few more months. At that point, we’ll reassess the situation.

Expect the next year to be quite volatile for the stock, bond and foreign exchange markets. 

Despite this, the market’s reaction to a Trump presidency suggests a strong belief in a bullish economic outlook.

So, as always, keep calm and invest!

Please feel free to reach out if you have any questions or would like to discuss this further.

And, as always, keep calm and stay invested.

Nirav