INTRODUCTION

We are pleased to present you with the Spring Newsletter.  In this edition we begin with the effect on clients of a significant upcoming change in the custodian who holds all client funds at Otto & Associates.  While Charles Schwab bought TD Ameritrade more than two years ago, the merger will actually take affect for us in early September.  We explain what changes you can expect as a result of this merger.

The second article is designed to lower your blood pressure when you read a headline on some financial matter that is likely to make you upset.  That is followed by reference to a booklet dealing with various transitions that go along with aging and is written both for those who are getting older, as well as for family and friends who might be called on to help an older person.

After 11 wonderful years, Joan Poulin is retiring from O&A.  Joan will certainly be missed, and she has written a letter saying goodbye.

The Newsletter concludes with some wisdom on investing and Office Matters.  Happy reading. 

SCHWAB TRANSITION

In 2019, TD Ameritrade Institutional, which has served as the custodian for Otto & Associates clients for the past 11 years, was acquired by Charles Schwab. Since that time, these two custodians have been working towards this merger, and the moment is just around the corner.

If you have been with Otto & Associates for more than a decade, you may remember that we previously held our clients’ accounts at Schwab, but in 2012, chose to move to TD. While our upcoming transition back to Schwab has similarities, it should be much simpler and require fewer, if any, signatures from you.

What will this transition look like, and what does it mean for you? It will take place over Labor Day Weekend, 2023, with all accounts resuming normal operations at Schwab on Tuesday, September 5th. Over that weekend, all current accounts you hold at TD will become Schwab accounts. Any previously set up money movements will transfer to Schwab automatically, and we will be in touch if there are any actions you need to take before or after the transition.

At Schwab, you will have access to an expanded suite of online services and resources. If you’re curious to know more about these features, or about the nuts and bolts of the transition, we encourage you to explore the transition website, found at welcome.schwab.com.

During the next three months, we will provide you with more detailed updates about the transition. You can also expect emails from Schwab later this summer, notifying you about your accounts moving from TD to Schwab.  This “negative consent” letter requires not action on your pat.  Your accounts will automatically move to Schwab providing you do not sign the letter. We expect that all O&A client accounts will move. 

While you do not need to do anything for your accounts to transfer, you will eventually receive a notice prompting you to establish online login credentials, which we encourage you to do. If you have any concerns, questions, or requests as we move forward, please give us a call or reach out over email.

WHEN HEADLINES WORRY YOU

On Friday, March 10, regulators took control of Silicon Valley Bank as a run on the bank unfolded. Two days later, regulators took control of a second lender, Signature Bank. With increasing anxiety, many investors are eyeing their portfolios for possible exposure to these and other regional banks.

Rather than rummaging through your portfolio looking for trouble when headlines make you anxious, turn instead to your investment plan with O&A.  Ideally your plan is designed with your long-term goals in mind and is based on principles that you can stick with, given your personal risk tolerances. While every investor’s plan is a bit different, ignoring headlines and focusing on the following time-tested principles may help you avoid making shortsighted missteps.

1.    Uncertainty Is Unavoidable

Remember that uncertainty is nothing new and investing comes with risks. Consider the events of the last three years alone: a global pandemic, the Russian invasion of Ukraine, spiking inflation, and ongoing recession fears. In other words, it may have seemed as if there were plenty of reasons to panic. Despite these concerns, for the three years ending February 28, 2023, the Russell 3000 Index (a broad U.S. stock market index) returned 11.8%, which is about 2% higher than the average long-term return.  The past three years certainly make a case for weathering short-term ups and downs and sticking with your plan.

2.    Market Timing Is Futile

Inevitably, when events turn bleak and headlines warn of worse to come, some investors’ thoughts turn to market timing. The idea of using short-term strategies to avoid near-term pain without missing out on long-term gains is seductive, but research repeatedly demonstrates that timing strategies are not effective.  The impact of miscalculating your timing strategy can far outweigh the perceived benefits.

3.    Diversification Is Your Buddy

Nobel laureate Merton Miller famously used to say, “Diversification is your buddy.” Thanks to financial innovations over the last century in the form of mutual funds, and later ETFs, most investors can access broadly diversified investment strategies at very low costs. While not all risks—including a risk of a recession—can be diversified away (see Principle 1 above), diversification is still an incredibly effective tool for reducing many risks investors face. In particular, diversification can reduce the potential pain caused by the poor performance of a single company, industry, or country.  As of February 28, Silicon Valley Bank represented just 0.04% of the Russell 3000, while regional banks represented approximately 1.70%.

For investors with broadly diversified portfolios, including international stocks and U.S. bonds, exposure to Silicon Valley Bank and other US-based regional banks likely was significantly smaller. If buddying up with diversification is part of your investment plan, headline moments can help drive home the long-term benefits of your approach.

When the unexpected happens, many investors feel like they should be doing something with their portfolios. Often, headlines and pundits stoke these sentiments with predictions of more doom and gloom. For the long-term investor, however, planning for the long-term future is far more powerful than trying to deal with the headlines in the financial press. 

[This article is adapted from an article written by Dimensional Fund Advisors on March 15, 2023.]

TRANSITIONS

“Aging – it’s a privilege and a challenge.” So begins the collection of articles entitled “Transitions,” put together by a local New Hampshire law firm.  Some of you who live close to our Vermont office (which is minutes from the Connecticut River and the New Hampshire border) may be familiar with or have completed your estate documents with Caldwell Law. 

We have had the privilege of working closely with Tim Caldwell and his team of lawyers for many years and often refer clients to them for their estate needs.  They are thorough, comprehensive, and always work with us to come up with the best solutions for our clients.

Typically, we recommend clients utilize estate attorneys when updating or creating their estate documents.  These attorneys are trained to look at all facets of an estate plan, and to think creatively about estate planning to solve complicated problems.  Because of their experience, they are also keenly aware of a myriad of issues that come with aging, and the questions people may have.  In “Transitions,” Caldwell Law unpacks many of these financial and personal challenges, which go beyond the “merely” legal aspects.

In addition to addressing some of the harder parts of aging, this collection also explores the opportunities and natural changes which accompany getting older. In this collection, you will find an article on fitness, written by a personal trainer, and a second which shares balance exercises to be done at home.  Other topics include palliative care, living with cognitive decline, and writing a memoir.  Through these articles, strategies are explored to live the latter portions of our lives to their fullest.

The collection is designed both for those who are aging, as well as for people who play supportive roles to loved ones who are aging.  Caldwell Law has generously offered to give us as many copies of “Transitions” as our clients request.  We would be pleased to send you a hard copy, or email you a digital copy.  Please contact our office if you would like to receive one.

SERENDIPITY 

by Joan Poulin

In May of 2012, I joined O&A.  At the time we were transitioning from Schwab to TD Ameritrade and papers seemed to be flying everywhere.  Here I was, brand new, not knowing a thing about the paperwork, much less our clients.  There seemed to be so many names!

Fast forward 11 years.  My, how things have changed! I have learned so very much about all of you.  This is the part of my job I have loved the most.  I cannot tell you how much joy it brought me to get a photo of a new baby or puppy or to be asked advice about how I make a particular dish! And for the clients we have lost along the way, that has saddened me also.  Knowing you has made all the difference in doing my job.  My goal was always to make things as easy for you as possible and to help wherever you needed me to.

With the upcoming transition back to Schwab, the time seemed right to retire.  Serendipity indeed.  My volunteer activities have grown over the years.  I am involved with three organizations and look forward to helping out even more.  I have a stack of books to read, college classes I’d like to take, cultural events to look forward to, and friends to catch up with.  Most of all though, is time to be spent with my family. 

In the end, know you will be in excellent hands with Laura and everyone at O&A.  I will miss you all very much and wish you the best always.

INVESTING WISDOM

[In 1981, David Booth, along with another investor, founded Dimensional Fund Advisors.  More than 40 years later, Booth, who today is Chairman of DFA, continues to be very involved in the company.  As readers know, O&A invests more money with DFA than any other mutual fund family because of their unique way of investing.  The costs are low, they use indexing as the basis for their investing and then modify basic indexing just a bit to enhance return and reduce risk.  Booth periodically offers pithy advice.  What follows is an example.]

The Difference Between a Forecast, a Wish, and a Worry

by David Booth, August 8, 2022

When I was growing up, our local newspaper, the Kansas City Star, was full of news and had one page for opinion. After decades of cable news and nonstop digital postings, I see more opinions these days than news. That’s not a bad thing. But when it comes to investing, it’s crucial to remember the difference between news and opinion, and how they are sometimes used to forecast the future.

Any time the government releases new data on unemployment or inflation or interest rate changes, people start claiming they can forecast the future. That’s not necessarily a bad thing either. But most of what I hear people say isn’t what I would call “forecasting.”

Forecasting is when you have a high degree of confidence in an outcome based on well-proven models. The weather forecast for a few days from now is a lot better than anything I read in the Kansas City Star about investing. The weather forecast is pretty darn accurate. I’d sure call that kind of forecast the right use of the word. That is different from someone issuing a “forecast” for when the Dow will hit a certain number. Or when inflation will reach a certain level. Or which five stocks will rise the most over the next year.

So when people say they forecast that something will be at this level at that time, I don’t call that a forecast.

That’s a wish.

And when people forecast that something will go down at a certain time?

That’s a worry.

Do you really want to invest your hard-earned savings—the money you’ll need for your kids’ college or your own retirement—based on someone’s hunch or wish?

The good news is you can have a good experience without having to do any forecasting—I believe you just need to be a long-term investor with a truly diversified portfolio.

OFFICE MATTERS

The 2022 O&A move in Norwich from Main Street to Beaver Meadow Road has proven to be most fortuitous.  After being at one location for more than 10 years, we moved in 2020, into an office that seemed very good, but proved to be too small, in a building and with a landlord, both with unusual quirks.  Last summer we moved two blocks to an office that is much better for us.

Our current landlord spruced up the suite of three offices with new paint and new floors.  Susan, Laura, and Eliza each have their own office, and David “floats” when he is in Norwich.  There is always a free office, or at least office space, available for him.  Feel free to drop in.  There is at least one person in the office most days between 

9:00 and 3:00.  That said, it is always safer to call before coming.  With a decorative fireplace in each room and a team that likes their space, it is a pleasant environment.

The Katonah “office” also seems to be thriving, although losing Joan will be a real adjustment.  As readers know, after 25 years, we gave up our office at 200 Katonah Avenue.  However, the accountants at Heckler and O’Keefe have made their conference room available to us for seeing clients and that has worked out very well.  Our other Katonah “office” is the condo off Valley Road in Katonah.  We have staff meetings there; there is a room dedicated to the 8 or 10 computers that keep O&A functioning; and, in a pinch, we see clients there.  Originally, it was David who could not envision us giving up the office at 200 Katonah Ave, but staff won the day, and this has proven to be a good decision.

In this section of the Newsletter, we have previously reported on conferences that various staff have attended.  Alas, Covid has continued to influence our travel and we have not resumed going to out-of-town conferences.  We do continue to go to seminars and conferences online.  That said, at least two of us plan to attend an in-person NAPFA (the Fee Only group) Conference in the fall.

Last fall O&A celebrated the 30th Anniversary with parties in Katonah and Norwich (delayed by more than a year because of Covid).  The entire staff was present at both events and there was a significant turn-out by clients.  The feedback we received was heartening.  Both staff and clients seemed to enjoy it a lot.  One person asked:  Is it correct that we have to wait less than four years to celebrate the 35th?

Vacations will be spread out this summer, but there will be at least one person in the “office” each day this summer.  You probably understand why we put office in quotes.  We do have a physical office in Norwich, but we all also have home offices.  Deborah, Kathy, and David work from home most of the time.  However, we all have office phones in our homes (this includes Susan, Eliza, and David, and it will soon include Laura.)  Our phones are internet phones, so with our phone in hand, we can be connected anywhere there is internet available.  That can be confusing because we could be talking to you from Shanghai and no one would be the wiser.  (No one has actually tried that yet.)  This is also very convenient when Susan and David are in Maine in the summer because they take their phones with them to that office.

Finally, the authorship of the Newsletter is evolving.  David is no longer the primary writer.  It is now the entire team that has major input.  Mary Otto continues to be the editor extraordinaire. 

We close with wishing all good things for Joan and her husband, Steve.  As well, we trust all of our readers will have a good summer.