Resources

Just too good to keep to ourselves

Welcome to our library. We strive to provide resources so that our clients know as much as they wish when it comes to being financially savvy. And it doesn’t stop there! We are part of a larger community – including you, wherever you may be. This is where we share content and tools that are important, fun and even inspiring, with everyone. Our resource vault will help you get smart about money, find your own motivation to move forward, and laugh and breathe a bit easier along the way.

The ABCs of ESG: Our ESG Investment Approach

Published in: Resources |
By Hallie Kraus, CFP®, CRPC®

We’ve discussed how ESG investing can motivate the corporate world to make positive change and have acknowledged the complexity of the investment decisions that are being made within ESG funds. Another complex aspect of ESG investing is that different financial firms adopt different investment strategies that are suited to their clients’ needs. It’s time for us to share our take on it!

How We Approach ESG Investing Within Your Portfolio

The Humphreys Group has invested in ESG mutual funds for 20+ years, and such funds currently make up about 15% of our clients’ assets. We have worked closely with industry leaders like Impax Asset Management and Parnassus Investments as well as newer entrants, such as Dimensional Fund Advisors, who are interpreting ESG in new, interesting, and valid ways. Our approach to ESG investing has evolved as has the industry, as the “opportunity set” has expanded as a wider range of funds has been made available, as the evaluation process has become more nuanced, and as the false choice between performance and social impact has been debunked.

All of this has led us to a robust process for implementing ESG investment strategies within your portfolio. First, we’ll ask you to complete an ESG questionnaire. This identifies what issues are most important for you — for many, it’s the environment, for others, it’s gender diversity, while others may focus on avoiding for-profit prisons or weapons manufacturing.

We’ll then review the questionnaire together, talk about priorities and about the issues you care about, and most importantly, we’ll help you identify the values that underly your passion for the issues. ESG funds will almost never match your preferences exactly, but truly getting to the heart of the matter is how we can find the investment strategies that will leave you feeling fulfilled while still helping you accomplish your investment and financial goals.

Based on this conversation, we’ll implement an ESG investment strategy in accordance with your overall portfolio investment guidelines, and when appropriate, we’ll refer you to resources for alternative strategies. Over time, you can expect us to include your ESG funds in your portfolio and performance reports and notify you of any changes or new developments that may further align with your values.

ESG Funds Outperform Their Competitors

Back to that false choice we mentioned earlier: how do these funds perform? For a long time, there’s been an often-repeated myth about ESG funds. Many advisors will offer these funds to placate well-intentioned clients, but in the same breath will caution that they require a sacrifice on the performance side of the equation.

However, the numbers simply don’t bear this out: Morningstar reported that sustainable funds comfortably outperformed their conventional fund peers in 2019 — a pattern that has only accelerated during the pandemic. In 2011, a Harvard Business School study examined 180 US firms and found that those with strong sustainability policies outperformed their competitors by almost 4% per year. And in 2015, Deutsche Asset Management and Hamburg University conducted the most comprehensive meta-analysis on ESG investing. After reviewing over 2,000 empirical studies since the 1970s, they found that the large majority of studies reported a positive relationship between ESG and corporate financial performance. The researchers concluded that the business case for ESG investing is well founded. It’s becoming impossible to ignore that ESG funds are not a risk, they’re an opportunity.

And you don’t have to be Janet Yellen to understand why this makes sense! Companies that incorporate ESG into their decisions tend to be less risky than those making bad decisions, because the bad actors are more likely to incur financial losses (think of the BP oil spill, Volkswagen’s emissions scandal, and Wells Fargo’s account fraud… you get the idea). Doing the right thing has increasingly become good for business, and therefore good for investors.

ESG Investing Is Always Evolving

Of course, it’s good to remember that impact investing exists as a spectrum — a spectrum that has and will continue to evolve as investors respond to the changes within our economy and on our planet. How we make a difference with our money is also sure to change, and we may find ourselves using different approaches on that spectrum to complement our goals and values over time.

Now that ESG investing has proven itself as an increasingly powerful force for good, we invite you to utilize it the next time you feel a calling to make an impact. Because if 2020 has taught us anything, it’s that fostering our collective power will get us closer to a more equitable, more sustainable, more empathetic world.

Are you interested in ESG investing? Contact The Humphreys Group to learn how we can help you meet your goals.

The ABCs of ESG: Investing in Action

Published in: Resources |
By Hallie Kraus, CFP®, CRPC®

As we noted in our most recent blog post (linked here), there has been a tremendous rise in the interest in impact investing and the dollars devoted to it. The primary driver of ESG, and the reason it has become so popular in recent years, is the simple desire to use our money to fund companies that are making the world a better place. Many ESG investors are pleasantly surprised to find that in addition, they’re supporting engagement between investors, businesses, and the government. What does that actually look like?

As is always the case, each asset manager has a different approach and different criteria. But let’s take a deeper dive into the acronym itself, then focus in on the most common investment strategies.

What does ESG stand for?

Before investing in a company, a portfolio manager typically analyzes a massive amount of financial data: everything from its balance sheet and profit margins, to the current phase of the economic cycle, and the current interest rate environment. Managing an ESG fund comes with the additional responsibility and opportunity to incorporate a variety of environmental, social and governance (ESG) factors into their analysis. Here’s what’s actually behind that acronym.

Environmental: What does a company do (or not do) to protect the environment? As you’d probably expect, the most important information that falls under this category is a company’s sustainability practices and their greenhouse gas emissions. But this may also include their water and land use practices, treatment of animals, product packaging, renewable energy usage, and whether existing climate change trends will threaten the company’s future.

Social: How well does a company treat their employees, customers, suppliers, and society at large? Mutual fund companies usually pay attention to labor practices, what sort of hiring, human resources and safety policies the company has adopted, how they protect consumer privacy, their customer satisfaction, and where their supply chains are sourced.

Governance: How do corporate leaders run their business and relate to their stakeholders? Asset managers are usually most interested in executive compensation and how their financial incentives align with the company’s success. They’ll also look at the quality and diversity of the board of directors and management team, how they communicate with shareholders, and examine past lawsuits brought against the company.

Mutual fund companies will use these factors, along with data from third-party rating agencies, like MSCI ESG and Sustainalytics, to develop a comprehensive analysis of the company — in fact, many often end up developing their own ESG rating system.

And here is where the rubber meets the road. When you buy shares of an ESG fund, portfolio managers typically invest your dollars using one (or a combination) of the following strategies:

Negative (or Exclusionary) Screening

If a fund is negatively screened, it means that it either underweights or eliminates companies that the portfolio management team has deemed objectionable based on their ESG data. For example, many ESG funds refuse to invest in tobacco, alcohol, or gun manufacturing companies. They may also eliminate companies that violate some set of norms, like the Ten Principles of the UN Global Compact, or operate in countries with corrupt leadership or human rights abuses.

Positive (or Best-In-Class) Screening

If a fund is positively screened, it holds or overweights companies with strong ESG performance. Oftentimes mutual fund companies will develop a minimum standard based on their ESG rating system, and this strategy invests in companies that exceed that minimum. This is also sometimes called the “best in class” approach. To be clear, this doesn’t always mean they eliminate the poor performers from their fund — it just means they overweight the best performers of a specific group or sector.

Thematic (or Inclusionary) Investing

Then there’s thematic investing, which is not about rewarding or excluding certain companies, but instead about concentrating on one ESG issue. For example, a thematic fund may invest only in companies that use renewable energy, or only in companies that achieve a certain level of gender diversity in their management (like one of our favorite ESG funds, the Pax Ellevate Global Women’s Leadership Fund). Most of the time, thematic funds are focused on an issue that the portfolio management team believes will become a widespread (and profitable) trend over time.

Still, ESG Investing is Subjective

Some mutual fund companies practice just one of these investment strategies, and some may use a combination of all three.

But here’s the thing: try as we might to outline these strategies in a straightforward way, ESG investing in real life is not usually as simple as holding or not holding this or that company. In fact, it’s quite subjective, because every mutual fund company has developed different ESG criteria, offers different depths of research, exercises different levels of flexibility, and deploys a variety of investment strategies.

That means that you may hold a positive screened ESG fund, but still be surprised to find that it holds an airline or an oil company — when in fact the reason it’s there is because it has better ESG metrics, or is making significant strides, compared to other airlines or oil companies. Even negatively screened funds are not absolute: they may underweight, but still hold a very small stake in, companies you consider unfavorable.

All of that is to say, as it becomes more popular and more dynamic, ESG investing is moving away from the binary “yes/no” approach and toward a more nuanced and proactive methodology. The good news is that it can still be worthwhile. In our last piece, we bring this all a little closer to home and outline how The Humphreys Group approaches ESG investing within your portfolio. Check it out here.

The ABCs of ESG: What It Is, and What It Is Not

Published in: Resources |
By Hallie Kraus, CFP®, CRPC®

So, let’s say you’ve chosen one of the most accessible methods to make an impact: ESG investing. You happily buy some shares of an ESG mutual fund and think to yourself… what does holding this fund really do, anyway?

At face value, you’re buying a fund that has a specific framework for the companies it invests in, based on their environmental, social and governance practices. (We’ll discuss this in our next blog post and highlight some examples.) But there is a lesser known, equally important component to ESG investing. Investing in these funds also means that you’re supporting a significant level of dialogue between the mutual fund company and the companies it holds a stake in. Sometimes, that dialogue turns into much more overt pressure to incorporate more equitable and sustainable business practices.

Every asset manager is different, but it usually involves a combination of the following:

Shareholder Activism

Unlike traditional activism, shareholder activism doesn’t involve marches and boycotts, but like traditional activism, it does involve voting. You see, shareholders aren’t just entitled to quarterly dividends — depending on the class of shares, they’re also entitled to distinct voting privileges. And when an ESG mutual fund company owns a significant percentage of shares of a company, it leverages its rights as a shareholder to bring about sustainable and societal change. In addition to voting on a wide range of business decisions (such as board of director elections, environmental goals, executive compensation, among other issues), they may also propose their own recommendations to the board (called shareholder resolutions) that are voted on during the corporation’s annual meeting.

Engagement

If shareholder activism is analogous to voting in the political system, shareholder engagement most closely resembles advocacy. In this case, the “advocates” are the members of the mutual fund’s policy and research team(s), who meet directly with company executives and encourage them to adopt higher sustainability and governance standards. The asset managers will also share their expertise, research findings and other resources to support their demands. Depending on the willingness and progress that the company shows during the engagement process, the portfolio managers may change the fund allocation to invest more — or less — in that company.

What does this look like? Let’s look to Parnassus Investments as an example. Parnassus is a San Francisco–based firm and one of the first entrants in the world of impact investing, decades ago. Beginning in 2013, they voted in support of a shareholder resolution that called on Mondelez, which owns snack brands like Oreo, Ritz and Cadbury, to improve its packaging waste. Over the next five years, Parnassus also directly engaged with its head of sustainability and corporate security, and by 2018, the resolution grew to receive 31% of the shareholder vote. In October of that year, Mondelez announced that all the company’s paper packaging will be sustainably sourced by 2020, and all of its packaging will be recyclable by 2025. We love to see this kind of shareholder activism and engagement in action!

Advancing and Developing Public Policy

In addition to voting and appealing directly to executives to bring change within corporations, some ESG mutual fund companies broaden their advocacy efforts to influence policy. Portfolio research teams at Impax Asset Management, for example, serve as facilitators to help policymakers and investors understand how subsectors within industries operate. This makes it possible to identify the trends and components within industries that are needed to support sustainability.

Many mutual fund companies will also band together to expand their clout worldwide. In 2019 alone, Impax wrote or signed letters to at least 11 public entities, including the EPA, three state legislatures, the SEC, and the government of Bangladesh, on issues ranging from upholding air quality standards, to increasing funding for energy efficiency, to maintaining corporate disclosure requirements — just to name a few! Both Impax and PIMCO are also part of the Institutional Investors Group on Climate Change, a network of 240 asset managers and pension funds that works with policymakers to advance climate policy on the global stage.

The Power of ESG Investing

As wealth managers, we’re excited that ESG mutual funds have become uniquely positioned to serve as a link between investors, businesses, and government, and appreciate how they’re doing the legwork and research to identify a sustainable path forward. By investing even a small amount in ESG funds, you are promoting a dynamic discourse and advocacy between institutions that you couldn’t otherwise do on an individual level. But that’s just part of it! In our next piece, we’ll explore the more granular side of ESG investing: how fund managers actually put your dollars to work.

If you’d like to learn more about ESG investing, check out Part III of our blog series on the topic here.

The ABCs of ESG: An Introduction to Impact Investing

Published in: Resources |
By Hallie Kraus, CFP®, CRPC®

In the year that has brought us COVID-19, a nationwide reckoning with racial injustice and undeniable signs of climate change, many of us — often feeling otherwise helpless — have opened our wallets in an effort to help correct the inequities that have been laid bare in our country. This isn’t particularly unusual: whether we choose to make a donation to a local nonprofit organization, drop a bill into our church collection box or contribute to a GoFundMe page to help someone pay their medical bills, when life gets difficult, many of us have a natural inclination to use our dollars to make a difference in a way that we otherwise can’t. Of course, we don’t expect to see that money again, or to see it grow. We simply hope it will have an impact.

For decades now, many in the world of finance have taken this traditional model of philanthropy a step further through what’s commonly called “impact investing.” While there are many flavors of this rapidly growing segment of the investment industry, they are all based on the desire to make money and do good at the same time.

Of course, we at The Humphreys Group heartily endorse the increased interest in investing to promote social good. It is one of the most effective ways we can vote with our dollars and have our money and values aligned — which we have seen results in better financial outcomes. Because 2020 has given us no shortage of causes that are deserving of our help, we decided to mark this year by focusing on what it really means to be an impact investor and explore a new strategy that can help you have the impact you seek.

Impact Investing Approaches

Let us start by acknowledging there are countless approaches to impact investing, and each depends on a variety of factors, including your resource level, your risk tolerance, your values and your goals. While we surely can’t cover each individual strategy, we think the best way to understand impact investing is to envision it as a spectrum, with direct strategies on one end, and indirect strategies on the other.

Direct Strategies: One End of the Spectrum

When we talk about direct impact, we’re referring to strategies you’re most familiar with, like charitable giving and political donations. They are approaches in which we often have a fair amount of control over where our money goes, generally know how the funds will be put to work, and rarely, if ever, expect a financial benefit.

Humphreys-Group-ESG-Chart-1

Less Direct Strategies: The Middle of the Spectrum

As we get closer to the middle of the spectrum, we lose some of that control, but we’re still quite aware of how we’re effecting change. Perhaps we choose to practice intentional spending, like supporting businesses that are women-owned, Black-owned, or certified as a B Corp. Maybe we choose to participate in a program that provides loans to underserved populations, like a microfinance organization or lending circle. Remember that these strategies are less direct because, for example, you cannot instruct how a loan recipient or business owner puts your money to use. But you are still broadly aware of how your money is reflecting and advancing your values. In some situations, like a lending program, you may expect some interest or a small return on your investment.

Humphreys-Group-ESG-Chart-2

Indirect Strategies: The Other End of the Spectrum

The best example of an indirect strategy is called ESG (environmental, social and governance) investing. It involves you (as an individual investor), buying shares of a mutual fund and essentially putting your trust in a number of intermediaries (portfolio managers, other shareholders and corporate executives) to use your money for good. In exchange, your investment is expected to grow over time. ESG investing is also one of the most accessible forms of impact investing, especially compared to those with a higher asset base, who might be better financially positioned to engage in more direct programs like microfinance or private foundation work. This indirect side of the spectrum is where wealth managers are most often engaged, and while ESG investing specifically can seem “hands off,” you may be surprised to know that it is an incredibly powerful way to bring about change.

Humphreys-Group-ESG-Chart-3

Why ESG Investing Is So Effective

The reason ESG investing is so effective is because it’s multifaceted. While enabling us to proactively use our money to support that which we want to thrive, this strategy also leverages research, financial support, shareholder activism and policy development to apply pressure on the private sector to become more equitable and sustainable. And it happens to be at an inflection point. According to Morningstar, the first half of 2020 saw a record $20.9 billion flow into ESG funds — almost as much as the $21.4 billion in ESG flows in all of 2019.

As we’ve seen ESG investing evolve, we’ve grown more excited about its potential. In the next three blog posts, we’ll take a deeper dive at why this indirect strategy may actually become the future of impact investing. First, we’ll take a look at how it can influence business leaders to act more equitably, then we’ll talk through what investment decisions are being made within the fund, and in our last post, we’ll share our specific perspective and investment approach. After a long, difficult year, we think it will give us all a much-needed renewed sense of hope.

If you’d like to learn more about ESG investing, check out Part II of our blog series on the topic here.

Q&A: What Does It Mean to Be a B Corporation?

Published in: Resources |

We recently shared the exciting news that The Humphreys Group is now a Certified B Corporation. We wanted to further explain what that means, especially since the issues of sustainability and social responsibility are so prevalent right now.

In this Q&A, President Diane Bourdo, CFP®, shares why earning this certification was so important to The Humphreys Group and the firm’s goals for 2021 and beyond:

1. Why did The Humphreys Group want to earn the B Corp certification?

Diane Bourdo (DB): I initially learned about the B Corp certification probably two decades ago. I’ve always aspired to run The Humphreys Group to serve the interests of all stakeholders, so validating that effort with a B Corp certification was a no brainer. I wanted to recognize and foster the idea (and my belief) that business success is not measured solely by the bottom line.

The world of wealth management is steeped in numbers and metrics, of course, and I wanted to explore other ways to measure value and success in a for-profit environment. I wanted to see (and felt challenged by) whether we could pass muster in this regard and earn the certification.

Joining a community of like-minded endeavors has great appeal. I want to add our voices to the growing belief that making money and doing good can happen at the same time.

2. What does the B Corp Impact Score mean?

DB:  From my perspective, the score measures how well we are doing when it comes to including the interests and concerns of all stakeholders in our business decisions and functions. Looking at the various groups of stakeholders:

  • Clients:
    • How well are we serving our clients?
    • Specific to our investment management services, how much of our managed asset base is invested in impact investments?
    • What are the fees that we charge and what is included in them? Are they reasonable and fair, considering the competition?
    • Do we hold ourselves (as we should) as fiduciaries? Do we put our clients’ interests ahead of our own? Yes, we do.
  • Staff:
    • What is the nature of the human resource component?
    • What is the difference between the salaries of the highest paid vs. the lowest paid employees?
    • Are we providing strong benefits including retirement account funding, paid time off, and the like?
  • Environment:
    • This process allowed us to take a close look at our environmental footprint. We are delighted that 60+% of the energy in our building is produced from alternative sources. We are committed to making the greenest choices possible, down to the hand soap and paper products we use.
  • Our Local Community: 
    • Everyone on the team lives in San Francisco, so we have no shortage of organizations we want to support — with our time, talent, and treasure. We commit to closing the office three to four days per year to do community service as a group. We provide financial support to organizations from the firm as a whole and at the direction of each of us, individually. We also regularly provide pro bono financial planning to underserved communities.
  • Our Professional Community:
    • Sisterhood was powerful in the ‘70s and it remains so today! In ways direct and indirect, we support our fellow female financial advisors and share our knowledge and resources.

3. How does being a B Corp change how The Humphreys Group is run?

DB: It formalizes what we already do and our commitment to it — and it also inspires us and motivates us to do better. It provides a much-needed morale boost (2020!) to know that our approach is valued and that we are part of a community of like-minded organizations.

4. What benefits do all stakeholders (clients, employees, communities, the environment) get from The Humphreys Group becoming a B Corp?

DB: They can see what we are committed to, and as it applies to them (see answer to question 2). We are putting our flag in the ground for what we believe in and are committed to doing — in a public, transparent, measurable way.

5. How does becoming a B Corp further The Humphreys Group’s mission of helping women own their financial power?

DB: We frequently urge our clients to align their money and values. We have seen that when that happens, our clients are more engaged in their own financial life, they gain confidence, they make better decisions for themselves, and they achieve better financial outcomes.

It is so important to us to show our clients that we believe this to also be true for ourselves, as a firm. Living by and espousing one’s values is easier said than done.

Becoming a B Corp is a way for us to demonstrate exactly what it means to align your values and your wallet. We all have power in how we deploy our financial assets and this is a way to show just how powerful that can be. We are setting the example — leading by doing.

6. How does the B Corp certification align with The Humphreys Group’s values?

DB: For most of my adult life, it’s been important to me to use my financial resources as a way to express my values. In addition to boycotting certain companies and products, I aim to direct my spending toward enterprises I wish to support and whose values are aligned with mine — and The Humphreys Group.

The metrics that go into a B Corp certification are extremely similar to our firm’s values and the ethic we strive to embody in our work with clients and each other. I have long believed that while the traditional metrics are crucial for business success, the broader business purpose must recognize and value the experiences of those it serves, those working within it, and the broader community.

7. What are The Humphreys Group’s goals for 2021 and beyond being a B Corp?

DB: We look forward to getting more involved in the B Corp community — learning from other B Corp organizations and offering our expertise and experience to the community as well.

We want to do our part in changing the narrative about “profit at all costs” in our own industry as well as championing those values more broadly.

Additional Resources

Miss our B Corp announcement? Check out the press release here! You can also learn more about what a B Corp is here.

Influential Women in Impact Investing

Published in: Resources |

Once viewed as a “finance backwater,” impact investing has come to the forefront as the world collectively comes to grips with issues exacerbated during the COVID-19 pandemic — from climate change, to systemic racism, to gender diversity in the workplace, to unequal pay, to food insecurity.

While impact investing is now a hot topic (it has $502 billion in assets under management globally), women have been leading the way in this field for decades. Women have been better represented in impact investing possibly because “this sector is inherently — perhaps by design — more diverse and equitable,” Irene Mastelli of Phenix Capital explains.

The list of women shaking up the impact investing field is endless, and we’d never finish this blog post if we listed them all (check out this article for a list of some of them). So in today’s blog post, we’ll just be highlighting three inspiring women in impact investing.

1. Amy Domini, Founder and Chair of Domini Impact Investments

Amy Domini

Amy Domini is a well-known leader in socially responsible investing. In the 1970s and ‘80s, she was a stockbroker in the Boston area. It was then she learned that many investors had strong views on what they would, and wouldn’t, invest in. That led her to understand the power of mission-driven investing, and soon she began pushing for divestment from South Africa, which was under apartheid rule. In 1990, she created one of the first social indexes of U.S. companies based on ESG criteria; later that decade, she started her company based on similar sustainable principles.

What are Amy’s hopes for the future of impact investing? “Companies need to report on the impact their operations are having on people and the planet in a manner that is quantifiable and relevant,” she told InvestmentNews. “With this information, investors will make better, more informed choices.”

 

2. Julie Gorte, Senior Vice President for Sustainable Investing at Impax Asset Management

Julie Gorte

Julie Gorte leads Impax Asset Management’s Sustainability Research team in conducting environmental, social, and governance (ESG) security analysis on prospective and current investments as well as the firm’s shareholder and public policy advocacy initiatives. According to Julie’s LinkedIn bio, her team was instrumental in the development and launch of the Pax Global Women’s Leadership Index, a custom index calculated by MSCI, in 2014.

Julie serves on the boards of the Endangered Species Coalition, E4theFuture, Clean Production Action, Great Bay Stewards, and is the board chair of the Sustainable Investments Institute. She also serves on the Investment Committee of the United Nations Environment Programme Finance Initiative.

 

3. Sallie Krawcheck, CEO and Co-Founder of Ellevest and Owner and Chair of Ellevate Network

Sallie Krawcheck

Sallie Krawcheck’s professional mission is to help women reach their financial and professional goals. She hopes this will enable them to live better lives and unleash a positive ripple effect for their families, communities, and economy.

Sallie is the CEO and co-founder of Ellevest, a digital, mission-driven investment platform for women. Ellevest is a champion of impact investing; ESG funds are a big part of their Ellevest Impact Portfolios because they believe that by investing in companies who follow good ESG practices — and excluding those who don’t — their dollars can help advance women.

Impact Investing with The Humphreys Group

At The Humphreys Group, we’re passionate about helping investors align their money with their values. If you’re interested in getting started with impact investing, reach out to our team today.

Required Minimum Distributions (RMDs): Rules Investors Should Know

Published in: Resources |

The end of the year is usually when retirees have to take their required minimum distributions (RMDs). However, this year, seniors don’t have to take them. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law in March 2020, allows anyone to forgo the usually mandatory annual withdrawals from their retirement savings.

The CARES Act waives the rules for RMDs for the 2020 tax year, but it’s still important to understand the ins and outs of RMDs. Here, we answer some frequently asked questions:

FAQ About RMDs

1. Why do RMDs exist? Is it just to prevent investors from deferring paying taxes on retirement assets indefinitely? 

Traditional IRAs and other retirement accounts such as 401(k)s allow taxpayers to contribute pre-tax earnings that can grow tax-deferred until withdrawal. The required minimum distribution (RMD) ensures that these earnings are eventually taxed. The required distributions are calculated based on life expectancy so that the account is gradually depleted over the lifetime of the taxpayer.

2. How does the SECURE Act change the initial age threshold for RMDs? Is a good or bad thing for investors?

Previously, account holders were required to begin taking RMDs in the year they turned 70.5 (with a deadline of April 1 for the first RMD only). The SECURE (Setting Every Community Up For Retirement Enhancement) Act, which passed in December 2019, allows those account holders who have not yet begun distributions to delay their first RMD until the year they reach age 72. The delay will afford investors additional time for tax-deferred growth, as well as postpone the inevitable tax bill.

3. How do RMD deadline rules work for a 401(k) vs. an IRA?

The SECURE Act also delays RMDs to age 72 for 401(k)s and other defined contribution plans. There are some exceptions for people who continue to work beyond age 72.

4. Can you offer some strategies to avoid the penalty for not taking RMDs on time?

If you fail to take your RMD on time, the penalty is 50% of the RMD amount. Set a reminder for yourself to take your first RMD, as you would for any other significant obligation.

You can take your RMD at any time during the year, so you may choose to take your distribution early to avoid a last-minute scramble. Some people break the distribution into monthly payments, or take a lump sum early in the year as part of their tax preparation process. One of our clients, for instance, likes to take the distribution on their birthday to celebrate all of their disciplined years of saving.

5. Is there ever a scenario where a Roth account would be subject to RMDs?

RMDs are not required for Roth IRAs. Withdrawals from Roth IRAs are not taxable because the contributions were made from earnings that had already been taxed. The IRS has no incentive in requiring distributions.

The only scenario in which RMDs apply to a Roth IRA is if you inherited it from someone who wasn’t your spouse before 2020. Before the SECURE Act, non-spouse beneficiaries of traditional and Roth IRAs were required to take RMDs based on their lifetime. However, now that the SECURE Act is in effect, those beneficiaries must withdraw the full balance of the IRA within 10 years, whether it’s a traditional IRA or a Roth IRA.

6. Are there any other rules to know about taking RMDs?

If you have multiple IRAs, you must calculate each account individually, but you can take your total RMD amount from just one IRA or a combination of IRAs.

If you inherit an IRA or a 401(k), you can no longer stretch the RMDs from those accounts over your lifetime. Beginning in 2020, non-spouse beneficiaries of inherited IRAs will be required to distribute the full balance of the account within 10 years. This applies to Roth IRAs as well.

A strategy for reducing the tax impact of an RMD is to use a portion of the distribution to make a qualified charitable distribution (QCD). The amount of the QCD is excluded from your taxable income up to the amount of the RMD and not in excess of $100,000.

Have Any Other Questions About RMDs? Reach Out to Our Team

At The Humphreys Group, we’re passionate about helping investors gain financial confidence and own their financial power. And that starts with knowledge. If you have any other questions about RMDs and the rules for this year due to the CARES Act, reach out to our team today.

Recommended Reads on Impact Investing

Published in: Resources |

You’ve probably been hearing more about impact investing lately. According to Morningstar, the first half of 2020 saw a record $20.9 billion flow into sustainable funds. As we’ve written on the blog before, the global COVID-19 crisis, social unrest, and economic inequality have highlighted how connected we all are and how deeply we need more efficient systems. If you’re interested in learning more about impact investing, these three reads are a great place to start:

1. Real Impact: The New Economics of Social Change by Morgan Simon

Impact investing has been a hot topic within investment circles for a long time, and for good reason — when like-minded investors pool their resources with a single mission in mind, they have the potential to be a powerful force for good. But after nearly 20 years of leading and managing endowments and foundations, Morgan Simon has noticed that impact investing often comes up short. More often than not, she says, well-intentioned investors choose to address the symptom (for example, temporarily improving the circumstances of underserved communities) without treating the disease (for example, addressing the power imbalances in our economy).

In Real Impact, Simon breaks down why impact investing often fails to maximize its potential, proposes a new model and set of principles that might broaden its influence, and shares stories that bring these principles to life. She passionately argues that investing can be used to foster real, transformative change, and challenges the reader to help build a better economy and healthier world.

2. The Power of Impact Investing: Putting Markets to Work for Profit and Global Good by Judith Rodin and Margaret Brandenburg

Doing good in the world of and getting a return on your financial investment does not have to be an either/or proposition. Enter impact investing — an approach to investing that combines the desire for a financial return with the desire to produce social and environmental benefits. In their book The Power of Impact Investing, Judith Rodin and Margot Brandenburg map out what it means to be an impact investor, the range of investment opportunities that are available, and perhaps most importantly a chapter entitled “Getting Started” to help you, the investor, get launched. They bring a wealth of expertise to the topic and their passion for impact investing and the positive change it can produce is apparent throughout the book.

Their book is a call to action for those who are curious about this form of investing. As they point out, it may not be the right answer for everybody, but it is a way to harness the power of capital markets for social good. Not designed to replace traditional philanthropy or grant making, impact investing provides an additional tool in the battle to improve lives and solve some of the world’s biggest problems. Impact investing is a means of using capital to drive financial value and social and environmental impact simultaneously. In other words, you can have your cake and eat it, too!

3. Winners Take All: The Elite Charade of Changing the World by Anand Giridharadas

This New York Times bestseller looks at how the global elite’s efforts to “change the world” actually preserve the status quo and obscure their role in causing the problems they later seek to solve. It’s an essential and fascinating read for understanding some of the egregious abuses of power that dominate today’s news. Anand Giridharadas takes us into the inner sanctums of a new gilded age, where the rich and powerful fight for equality and justice any way they can — except ways that threaten the social order and their position atop it. They rebrand themselves as saviors of the poor; they lavishly reward “thought leaders” who redefine “change” in ways that preserve the status quo; and they constantly seek to do more good, but never less harm.

Giridharadas asks hard questions: Why, for example, should our gravest problems be solved by the unelected upper crust instead of the public institutions it erodes by lobbying and dodging taxes? This book points us toward an answer: Rather than rely on scraps from the winners, we must take on the grueling democratic work of building more robust, egalitarian institutions and truly changing the world — a call to action for elites and everyday citizens alike. Once you get a taste of Giridharadas’ message and style, you may want to follow him on Twitter (@AnandWrites) and subscribe to his newsletter The.Ink (https://the.ink/). You can rely on him for a fresh, informed, original and intelligent take on today’s current events.

Impact Investing with The Humphreys Group

Let us know if you read one of these three books on impact investing! If you want to learn more about impact investing, reach out to our team today.

6 Investing Tips for Gen Z and Millennials

Published in: Resources |

Your 20s is a great time to get into the stock market. Whether it’s in a taxable account or retirement account, investing early gives your money lots of time to grow and lets compound interest work its magic.

Why Start Now?

To understand the consequences of waiting to invest, consider this example. Let’s say you start contributing $100/month at age 25 to your retirement, and you do so for 40 years. Assuming a 7% return, you’ll end up with $260,000 in your retirement account at age 65. If you wait until you’re 35 to begin that contribution, all else being equal, you’ll have only $120,000 in your retirement account at the same retirement age. That ten-year delay would cost you over half of your retirement savings! (Check out the SEC compound interest calculator to play with the numbers for yourself.)

Tips for Investing in Your 20s

Here are our tips and strategies for investing in your 20s:

  • Invest in mutual funds, not individual stocks. The days of old-fashioned stock-picking are long gone — mutual funds offer both diversification and professional expertise, two vital components of investing.
  • Diversify. Buy funds that invest in US equities, international equities, large cap, small cap, fixed income, real estate, etc. to give yourself exposure to all areas of the market and minimize risk.
  • That said, don’t overthink it or worry about picking the “wrong” fund. How soon you start investing is more important than what you invest in.
  • Set up automatic contributions. By investing a consistent amount on a regular basis, you’ll sometimes buy when the market is low, and sometimes buy when it’s high. This strategy will ultimately allow you to buy shares at a lower average cost over time and hopefully help you avoid any temptation to “time the market.”
  • If you’re wondering what account to open first, look to your employer and see if they offer a retirement plan like a 401k or 403b. If they offer an employer match, contribute at least as much as is required to take full advantage of it. If you don’t, you’re essentially leaving free money on the table!
  • If your employer doesn’t offer a retirement plan, consider an IRA or Roth IRA. Roth IRAs are generally advantageous for young people but do keep in mind that there are income limitations involved.

Investing Mistakes to Avoid

Here are investing mistakes that 20-somethings should avoid:

  • Monitoring your investments too closely. Instead, you should set it and (kind of) forget it. Check your account quarterly to give yourself a sense of how much you’ve saved, but don’t check it regularly, especially during market swings. That will just lead to unnecessary anxiety and might prompt you to feel like you have to sell your investments when you should simply be riding out volatility in the market.
  • (Literally) buying into the latest trend. Don’t be seduced by financial sensationalism. The sooner we learn that smart financial decisions are usually not very exciting, the better!

The Advantages of Investing in Your 20s

When you’re in your 20s, your needs are likely much more straightforward. Investing for yourself now gives you more space and financial wherewithal to attend to your other goals when you get older.

People in their 30s and 40s have a lot of competing financial priorities: childcare, saving for their children’s college, saving for their own retirement, maybe beginning to help elderly parents… the list goes on. It’s a lot to juggle and can be overwhelming to decide what to prioritize.

Financial Planning with The Humphreys Group

Interested in learning more about investing and how you can get started early? Reach out to our team today.

Credit Card Habits During the Pandemic

Published in: Resources |

In our six-month reflection, we talked about how the pandemic has changed our spending behavior. For instance, we’ve noticed anecdotally that we’re spending less on travel and entertainment, understandably; instead, our discretionary income is increasingly going toward improving the creature comforts of our homes. Now, Money and Morning Consult’s new survey gives us insight into our credit card behavior with data.

Americans’ Credit Card Habits During the Pandemic

The good news is that over half of those surveyed said that they’ve put money toward a debt as a direct result of the pandemic, or plan to in the future.

But even though Americans are decreasing their balances, there’s a lot of anxiety around it; 25% of Americans said credit card debt is a source of daily stress. The high interest rates that credit cards carry is likely one of the main stressors.

With money worries on everyone’s minds, we wanted to answer common questions about credit cards: 

FAQ about Credit Cards

What is a common credit mistake?

A common mistake is relying too much on credit cards. It’s tempting to bridge any gaps between your income and expenses with a credit card. But because most cards have interest rates over 20%, if you aren’t able to pay off your balance in full every month, your debt can snowball out of control quickly.

How can people avoid relying on credit cards too much? 

If you’re on a tight budget, use them only for fixed, recurring expenses, and pay off the balance every month.

Doing this has a positive impact on the two most significant factors of your credit score: payment history and how much of your credit limit you utilize. This will get your credit into good shape should you eventually decide to buy a car or home, and won’t put you in danger of incurring a mountain of debt.

How can people recover from using their credit card too much? 

Seek credit counseling. Through close examination of your cash flow, credit card balances and interest rates, a counselor can help you identify the best strategy to handle your debt. Most credit counseling agencies are nonprofit organizations that offer free phone appointments. Find an agency near you by visiting www.nfcc.org/locator.

Can closing a credit card affect your credit score?

There are two reasons why closing your credit card can affect your credit standing.

First and foremost, one of the biggest factors on your credit score (second only to payment history) is your amount of available credit — in other words, how much you could spend until you hit your credit limit. And it’s good for your credit score to have a lot of available credit.

For example, if your credit limit is $10,000, and you typically keep your balance around $3,000, your available credit is around $7,000. If you were to pay off that balance, your available credit would increase to $10,000, and you might see your score slightly improve. However, if you close your card, you’d then be decreasing your available credit to $0 — and that will negatively impact your score.

Of course, the impact of closing one account also depends on the other open credit accounts you have. If you were to close a card that has a much lower limit compared to your other accounts, the impact on your score might be negligible. But there is another factor to consider: length of credit history. 

The age of your accounts is the next biggest factor on your credit score, and typically the longer the account history, the better it is for your score.

Let’s say you’re 50 years old, and you decide to close that old credit card that you opened back when you were 18. Unfortunately, your credit score is probably going to suffer as a result — even if you hadn’t used that card in several years — because it was one of your oldest accounts.

Keeping your credit cards open doesn’t mean you have to use them, of course. If your credit score is important to you, you can simply keep your unused credit cards somewhere safe and (more or less) forget about them. Some credit card companies may close the account if it’s been awhile since you’ve used it, so you may want to get in the habit of charging a small purchase to that card once or twice a year. But otherwise, you can stop using those cards and still benefit from the available credit they’re providing you with.

That said, your credit score isn’t everything. If the card comes with high annual fees, or if having lots of available credit makes you feel tempted to overspend, that open credit card probably does more harm than good. Closing the card might hurt your score temporarily, but in some situations, it could be better for your overall financial picture.

Financial Planning with The Humphreys Group

Want to learn more about credit card best practices? Check out Part 1 and Part 2 of our series from last year, “Mid-Year Wellness: The Credit Vs. Debit Debate.”