The Merriam-Webster Dictionary defines volatility as “a tendency to change quickly and unpredictably.” Investopedia defines volatility as “a statistical measure of the dispersion of returns for a given security or market index. In most cases, the higher the volatility, the riskier the security.”

Many people think volatility is when markets or portfolio values go down. But volatility can also refer to when those go up. The market will always fluctuate, and history tells us that it can recover. For example, after the S&P 500 bottomed out in March 2020 following the “Corona Crash,” it then went up nearly 80 percent. And other than a brief downturn in September, the rise went on more or less unabated in terms of corrections.

No matter how we define it, though, volatility can be our friend — something investors can welcome instead of fearing.

With a properly managed, monitored and implemented financial plan, volatility can enhance returns, reduce income tax and ultimately provide more stability to the portfolio. This sounds counterintuitive, right? But it’s true!

Here are three ways we can benefit from volatility.

1. Consider tax swaps

Volatility with individual investments can provide the opportunity for tax swaps. A tax swap is when you sell one investment with capital losses and replace it with a similar, but not identical, investment. You can move out of an investment to try to book a tax loss while immediately reinvesting into the same underlying group of or type of investments. This can be true of either equities (stocks) or fixed income (bonds).

People who simply buy and hold bonds are missing out on the potential benefits of tax swaps. Because of volatility, a buy-and-hold strategy often results in lower returns than a strategically managed portfolio. An experienced advisor can guide you in optimizing your returns.

Does this sound illegal to you? If so, you might be thinking of a wash sale,” which is illegal. A wash sale occurs when an investor sells a security at a loss but then purchases the same or a substantially similar security within 30 days of the sale. The IRS prohibits this! You cannot sell securities at a loss so you can get a tax benefit and then buy the same stock or bond back right away. But a tax swap is legal. That means you invest in a company that’s in the same sector as the investment you sold and use many of the same trading methods.

2. Rebalance from equity to fixed income, or vice versa

Volatility also can provide you with the opportunity to rebalance from equity to fixed income, or vice versa. Although it is impossible to time markets, rebalancing is a way to buy low and sell high without actually doing so. We take a systematic approach to rebalancing, which helps you maintain an asset allocation for your financial needs, so you can achieve a better rate of return over time for any given level of risk. This can provide more stability in your portfolio.

3. Stay focused on your long-term vision

The key is to avoid trying to predict the future or time the market. When the markets go up or down, stay focused on your long-term vision and plan. Take advantage of what’s happening in the market within the context of your overall goals and plan. Ultimately, the only return that is important is the net return — the return on your investment after fees, expenses and income tax.

Our team has developed and refined our Personal Vision Planning ® process over the past 30 years for uncertain times like today. This process provides you with a customized wealth-management plan based on you and your long-term vision.

The pace of change with technology, and ultimately the markets, continues to accelerate. Our team uses cutting-edge technology to monitor and rebalance portfolios. We believe technology should not be a replacement for an experienced advisor who understands what you are trying to accomplish. Instead, technology is a tool and is just one part of the arsenal an advisor or team brings to the table.

Please contact me personally, or any member of our team, if you would like to discuss your portfolio, if you have questions or if we can otherwise be of service. As always, your vision is our priority.

________

Randy Carver, CRPC^®, CDFA^®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Randy has more than 32 years of experience in the financial services business. Carver Financial Services, Inc. was established in 1990 and is one of the largest independent financial services offices in the country, managing $2 billion in assets for clients globally, as of February 2021. Randy and his team, work with individuals who are in financial transition as a result of divorce, retirement, or the sale of a business. You may reach Randy at randy.carver@raymondjames.com.

________

This information does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors.

Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

When people discuss why they appreciate their financial advisors, they typically specify helpful actions the advisors took, such as allocating their assets appropriately or guiding them in saving for retirement.

What people don’t tend to discuss, though, is the value you can derive when working with a financial advisor or team because they are responsible for something that didn’t happen — the taxes you didn’t pay, the market gain you didn’t miss or the market loss you didn’t sustain.

There is a difference between hiring someone to manage and invest your money and hiring someone to do holistic planning. If you choose to work with an expert for planning, there are differences among them, just as if you were hiring a surgeon.

To make the right choice for your situation, answer some questions: Are you hiring a single person or a full team? What is the scope of their client experience? Does the way they are compensated align with your interests or something else? Are these individuals fiduciaries, meaning they are obligated to work in your best interest?

You Can DIY, But Should You?

To illustrate the vast differences among advisors and their approaches to working with clients, let’s consider two (hypothetical) people — Joe and Frank.

Joe loves the do-it-yourself (DIY) approach. He found a commission-free trading platform online and, over a year, figured that he saved more than $5,000 in expenses and fees. He spent more than 100 hours looking for the best deals and managing his own wealth. In the end, his $500,000 portfolio made just over $20,000, and he was happy to pay tax on it. He then tried to time the markets after watching countless hours of news and researching on the internet. He lost a good portion of what he made.

In contrast, Joe’s Friend, Frank. paid a team of advisors $6,000 in advisory fees. While his expert team tailored a plan for him, Frank spent his time enjoying his family, a vacation and fishing, his favorite pastime. Frank ended up making $50,000 — after paying the advisors — and paid no income tax because of the planning his advisors did with his CPA, in this hypothetical example.

Focus on Your Net Return — On Assets and Time

At the end of the day, the most important outcome is your net return — both on your assets and your time. Yes, many people are capable of managing their own wealth — but they have better uses for their time.

While many firms, and financial planners, focus on investments and numbers, we concentrate on what’s most important to you personally. After our team learns what’s important to you — your vision — we will develop, monitor, and update a plan for you to achieve that vision. Your portfolio is just means to the end.

Volatility in the markets continues to increase. Meanwhile, the world is becoming more complex, and there is more information than ever to sort through. We are here to sift through it all and find what’s relevant to you, constantly monitor your progress, take advantage of opportunities, and miss potential pitfalls. We will guide you to the positive outcomes and away from the negative ones.

At the end of the day there are many things an advisor does to add value that you see.  Sometimes, the most important are the things we can’t see because they didn’t happen.

Please reach out any time if we can answer questions or otherwise be of service. We are here for you. Your vision is our priority.

________

Randy Carver, CRPC^®, CDFA^®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Randy has more than 32 years of experience in the financial services business. Carver Financial Services, Inc. was established in 1990 and is one of the largest independent financial services offices in the country, managing $2.2 billion in assets for clients globally, as of December 2021. Randy and his team work with individuals who are in financial transition as a result of divorce, retirement or the sale of a business. You may reach Randy at randy.carver@raymondjames.com.

The information contained in this post does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.

Returns are based on the S&P 500 Total Return Index, an unmanaged, capitalization-weighted index that measures the performance of 500 large capitalization domestic stocks representing all major industries. Indices do not include fees or operating expenses and are not available for actual investment. The hypothetical performance calculations are shown for illustrative purposes only and are not meant to be representative of actual results while investing over the time periods shown. The hypothetical performance calculations are shown gross of fees. If fees were included, returns would be lower. Hypothetical performance returns reflect the reinvestment of all dividends. The hypothetical performance results have certain inherent limitations. Unlike an actual performance record, they do not reflect actual trading, liquidity constraints, fees and other costs.

Also, because the trades have not actually been executed, the results may have under- or overcompensated for the impact of certain market factors such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. Returns will fluctuate and an investment upon redemption may be worth more or less than its original value. Past performance is not indicative of future returns. An individual cannot invest directly in an index.

We are surrounded by unknowns.

The coronavirus is still very much with us, as is much of the economic dislocation caused by the resulting lockdowns. Granted, we are evidently closing in rapidly on a vaccine—indeed, a number of vaccines. While encouraging, though, it may be some time before most of us will get access to a vaccine, and there is still a question of efficacy.

Also, we are going through a hyper-partisan presidential election and a contentious Supreme Court confirmation hearing. Plus, protests, rioting and social unrest are still causing chaos nationwide.

Before we become further engulfed by these multiple unknowns, I want to take a moment to review what we, as investors, should have learned—or relearned—since the onset of the great market panic that began in February/March and ended in August, when the S&P 500 Index regained its pre-crisis highs.

I also want to make a larger point that we may be missing some of the great things that are happening because of all the negativity we’re encountering. 

A Few Thoughts and Observations

History continues to show us that what goes down must come up. Here are some examples of this market phenomenon:

• No amount of study, economic commentary, or market forecasting ever prepares us for really dramatic events, which always seem to come at us out of deep left field. Thus, trying to make an investment strategy out of “expert” prognostication—much less financial journalism—always sets investors up to fail. Instead, having a long-term plan, and working that plan through all the fears (and fads) of an investing lifetime, helps us avoid sudden emotional decisions and achieve lifetime goals.
• In March 2020, the equity market went down 34 percent in 33 days. Analysts dubbed it the “coronavirus crash.” None of us have ever seen that precipitous a decline before— yet, with respect to its depth, it was just about average. That is, the S&P Index has declined by about a third on an average of every five years or so since the end of WWII. Once again, the media helped create panic.
• Almost as suddenly as the market crashed, it completely recovered, surmounting its February 19^th all-time high on August 18^th. The news concerning the virus and the economy continued to be dreadful, even as the market came all the way back. Two lessons here:
  1. The speed and trajectory of a major market recovery very often mirror the speed and depth of the preceding decline.
  2. The equity market most often resumes its advance, and may even go into new high ground, considerably before the economic picture clears. If we wait to invest before we see unambiguously favorable economic trends, history tells us that we may have missed a significant part of the market advance.
• The overarching lesson of this year’s swift decline and rapid recovery is, of course, that the market can’t be timed. The long-term, goal-focused equity investor is best advised to just ride it out.

“Far more money has been lost by investors trying to anticipate corrections than lost in the corrections themselves.”

—Peter Lynch

• Often, negative news creates positive economic action—for example, the monetary and fiscal policy that has helped fuel the market movement as the Fed has held interest rates at zero and the government has spent more than $2.8 trillion.

• Many worry about the outcome of the election and what might happen. American businesses adapt. Moreover, if the policies of the President, House or Senate are too radical we have another election in November 2022. The entire House and about a third of the Senate will have to face voters. Policy will change or the players will change, and politicians don’t like to lose their jobs!

Never Try to Time the Market

Each time there is an election, and especially now, people ask if they should get out of their investments and wait to see what the outcome is.

No! That is trying to time the market. Market timing is not possible.

Kevin O’Leary is a wildly successful businessman, author, politician, and television personality who appears on Shark Tank. He mentioned in our interview on October 7^th, the biggest mistake he has made, which has cost him millions, is trying to time the markets.

“The stock market is a device to transfer money from the impatient to the patient.”

—Warren Buffett

Poor Decisions Are a Bigger Threat than Market Volatility

I have worked in the financial services industry for 34 years and continue to see that those who develop a good plan and then stick with it succeed. In contrast, those who make emotional decisions because “this time It’s different” or “I am too old to see my portfolio drop significantly” often deplete funds. The biggest risk most people face is making poor decisions — not the markets or the economy.

Despite all the unknowns, this is one of the best times in history to be alive. We have amazing resources that were only science fiction a few short years ago. We should not lose sight of everything we have to be grateful for because of persistent negativity from the media, and sometimes family or friends.

Do we have food and shelter? Can we go to a store or shop online for whatever we need? If we can, then things aren’t really so bad after all.

So, take a deep breath, turn off the TV and radio, log off the computer and enjoy your family, friends and all you have to grateful for. Review your financial plan with your advisor. If you don’t have an advisor or a plan, this is a great time to consider both. Your vision — whatever it may be — is our guiding star. It drives our relationship with you and defines our success. Most importantly, it influences the plan we build together through our four-step Personal Vision Planning^® process.

There will always be uncertainty, which creates an opportunity for those with good planning — and risk for those without.

A Time for Thanksgiving — Anyway

Let’s not let the negativity we’re encountering steer our sight away from the great things that are happening. This holiday season let’s pause for a moment to count our blessings. Take a moment to think about what you have to be thankful for.

Our team is thankful for the friendship and the confidence our clients and friends have shown in us. We are thankful for the opportunity for achievement among those with the courage to see beyond short-term issues.

As always, my team and I are here to discuss any questions or concerns you have, whether you are a client or not. We appreciate the chance to help navigate the madness. In a time filled with challenges and continued uncertainty, we are here for you and appreciate the trust you place in our team. Your vision is our priority. We are deeply thankful and extend to you our best wishes for a happy and healthy holiday season!

Randy Carver is the president and founder of Carver Financial Services, Inc., and also a registered principal with Raymond James Financial Services, Inc. Having been in business 30 years, Carver Financial Services, Inc. is one of the largest independent financial services offices in the country, managing $1.6 billion in assets for clients globally, as of October 2020. You can reach Randy at randy.carver@raymondjames.com.

The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index. Past performance does not guarantee future results..

There are many reasons to feel stressed and anxious these days, especially when it comes to the economy and investments. Between the growing unrest in Europe, endless COVID-19 waves and rising inflation, it can feel impossible to catch a break. The incessant negative news from the media reinforces all of this.

As with anything in life, there is always going to be a mixture of good and bad. The important thing is to avoid focusing solely on the bad. Any decision made out of fear may cause problems further down the line. Moreover, if we have incomplete or simply false information, our decisions are likely to be wrong.

Let’s look at a few facts.

1. Today’s Volatility Is Not New

In March 2022, Harford Funds published a chart that displays some of the market dips of 30 percent or more in the S&P 500 Index drops over the past 61 years.

2. Panic could cost you in at least three ways

Market drops are normal. From January 1, 1980, to December 2021, the S&P 500 Index saw average annual drops of 14 percent, yet the average return over that period was 9.4 percent per year. With that in mind, let’s look at three ways that panic could cost you.

A. Focusing on the negative, which leads to fear

According to Newsweek, many cable news networks saw a dramatic increase in ratings during their 24/7 Coronavirus coverage. As shown in the chart below, from March 16–20, Fox News saw its ratings climb 89 percent over the same time last year, to 881,000 primetime viewers per day ages 25–54. CNN was up 193 percent to 790,000 and MSNBC climbed 56 percent to 570,000.

Making decisions based on fear creates a self-fulfilling market prophecy — more people are watching the news, which means more people are seeing examples of stories that can cause market instability, which gives them anxiety and could lead to fear-based investment decisions. This kind of mindset is contagious.

As Hartford Funds so accurately puts it, “When we’re anxious, we’re more likely to allocate our attention to negative information. Given the choice between information that may offer an optimistic perspective or data that paints a bleak future, an anxiety-influenced investor may naturally focus on threatening information.” When investors focus on that information, they tend to “play it safe” with their investments, potentially losing out.

B. Playing it safe

When a person senses instability, the natural instinct is to do everything possible to cultivate protection. This may mean moving to cash or fixed income. The problem with either action is that often, the best days in the market are within a week or two of the worst days, and you miss them. Missing just a few days can result in permanent loss.

In the two decades from 2001 to 2021, we experienced three bull markets and three bear markets, along with the terrorist attacks in 2001, the financial crisis in 2008 and the COVID-19 pandemic of 2020–22. Yet despite these unprecedented events, the S&P 500 still managed to generate a total annual return of 8.06 percent with reinvested dividends. The total return over this period was 409.13 percent. This means that a $10,000 investment made at the beginning of 2001 would have been $50,913.05 by the end of 2021.

Some investors move to bonds in an effort to avoid losses. However, moving to bonds not only may cause you to miss market returns but also to lose value in the bonds themselves. As interest rates rise, bond prices will drop. For the first time in several decades, we are seeing interest rates rise. The chart below shows how being out of the market could impact your portfolio.

C. Losing perspective — our economy is strong

When people feel panic setting in, they tend to change their behaviors to try to alleviate that feeling. As mentioned, this reaction or a focus on inflated safety can contribute to the loss of gains when the market does recover.

It is also common for individuals to see the market dropping and decide to abandon their overall plan to “stop the bleeding” and then wait for things to get better. This is market timing, and it doesn’t work.” As we have said previously, by trying to time the market, you potentially miss out on rallies. There is endless research out there proving that investors who try to time the market by hopping in and out of investments when the going gets tough often fail. It’s impossible to pick the accurate moment to dive in or pull out. We’re here to encourage you to maintain your perspective and to have a plan in place for when you need short-term cash and long-term cash.

Today the markets and economy are relatively strong. We are facing the headwinds of higher interest rates and inflation; however, overall earnings for companies remain strong. Moreover, as we have more uncertainly in Europe, the Middle East and even Canada, more funds will be directed to the United States. It has been said that our government is dysfunctional but stable.

According to the Bureau of Labor Statistics, the U.S. GDP grew 5.7 percent in 2021 after decreasing 3.4 percent in 2020, and GDP reached almost $23 trillion in 2021. This is the highest GDP growth rate in 37 years.

Thanks to stimulus checks, unemployment insurance and the Child Tax Credit, Americans have an average of 50 percent more money in their bank accounts than before the pandemic. Overall, wages are up, increasing by as much as 11 percent in some sectors. Unemployment has fallen to an astonishing 4.6 percent, back down to pre-pandemic levels. In the midst of a global pandemic, 11 million people were lifted out of poverty in 2020.

Corporate earnings numbers for Q1 2022 have been great. Right now, figures reflect S&P 500 earnings per share, tracking to a 31 percent year-over-year increase. (Yahoo! News) Now, of course this is all easier said than done. However, there are some helpful charts and years of data to show why what we are seeing is not new and also why panic may lead to very poor decisions.

3. There is opportunity in the market downturns

What many people don’t realize is that uncertainty can actually create opportunity for those who take advantage of the situation.

In one of our 2021 blog posts, “Volatility Is Our Friend,” we discussed strategies investors can use to benefit from volatility, including tax swaps and rebalancing from equity to fixed income or vice versa. Our team can help you discover and leverage the opportunities that are inherent in market downturns.

As Winston Churchill said, “Never let a good crisis go to waste.”

________

Ultimately, it’s impossible to manage your emotions in a vacuum. The media are almost solely focused on the negative. There have always been pandemics, geopolitical events and concerns about the economy, going back 1,000 years. The one thing that has changed is the volume of information we are exposed to.

Our team is here to help you make decisions based on facts and needs — not emotions or panic. With more than 250 years of combined experience, our team is here for you. It’s likely the news will get worse and markets will be volatile. Our Personal Vision Planning^® process takes into account the unforeseen. Feel free to reach out to us any time. Your vision is our priority.

________

Randy Carver, CRPC^®, CDFA^®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Randy has more than 32 years of experience in the financial services business. Carver Financial Services, Inc,. was established in 1990 and is one of the largest independent financial services offices in the country, managing $2.2 billion in assets for clients globally, as of December 2021. Randy and his team work with individuals who are in financial transition as a result of divorce, retirement or the sale of a business. You may reach Randy at randy.carver@raymondjames.com.

The information contained in this post does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.

Returns are based on the S&P 500 Total Return Index, an unmanaged, capitalization-weighted index that measures the performance of 500 large capitalization domestic stocks representing all major industries. Indices do not include fees or operating expenses and are not available for actual investment. The hypothetical performance calculations are shown for illustrative purposes only and are not meant to be representative of actual results while investing over the time periods shown. The hypothetical performance calculations are shown gross of fees. If fees were included, returns would be lower. Hypothetical performance returns reflect the reinvestment of all dividends. The hypothetical performance results have certain inherent limitations. Unlike an actual performance record, they do not reflect actual trading, liquidity constraints, fees and other costs.

Also, because the trades have not actually been executed, the results may have under- or overcompensated for the impact of certain market factors such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. Returns will fluctuate and an investment upon redemption may be worth more or less than its original value. Past performance is not indicative of future returns. An individual cannot invest directly in an index.

You may have heard of “the January Effect.” It refers to the belief that stock prices tend to rise more in January than in any other month.

Some traders believe the January Effect is a reliable “calendar effect” that can enable them to purchase stocks at a low price and then sell them after the January Effect has taken place and prices have increased.

How the Theory Came to Be

Investment broker Sidney Wachtel first noticed the “January Effect” in 1942. As he analyzed market returns dating back to 1925, he saw that stocks tended to see greater gains in January than in other months. Later on, a variety of academics confirmed this trend. This pattern has been observed in various stock markets around the world, including the United States.

There are many theories about why the January Effect occurs. Here are just four of many:

1. Some believe the January Effect is the result of smaller stocks outperforming larger stocks at the start of the year.
2. Another theory is that the rebalancing of portfolios and tax-loss selling at the end of the previous year can lead to increased demand for stocks when people rebuy in January.
3. A third theory is that some investors may be more optimistic about the market at the beginning of the year, which could contribute to the increase in stock prices.
4. Still another belief is that the January Effect is caused by people getting year-end bonuses and investing them in the market, or by end-of-year contributions to employee pensions and 401(k) plans.

Is It Fact or Fiction…Or Some of Both?

It appears that there have been some confirmed cases of the January Effect actually taking place. However, there is no clear consensus that the January Effect is a reliable hypothesis, and it certainly isn’t true on a consistent basis. Some studies have confirmed it has been documented primarily in the small-cap world, but the same studies found that the effect has decreased in magnitude over time. In January 2022, The Wall Street Journal reported that this theory applies to bonds more than to stocks.

Analysts at Investopedia ran some numbers to find out if there is any credence to the January Effect. They found that since the start of the 2009 market rally through January 2022, January months showed eight winners vs. six losers, a split of 57 percent to 43 percent. Given the strong rally from 2009, we might expect a higher number of January winners, but that is not the case.

You’ve probably heard the saying, “If it’s so easy, everyone would be doing it.” We believe that’s the case here. If, in fact, if there are always strong returns in January, then why isn’t everyone taking advantage of this phenomenon?

As with many “arbitrage opportunities,” the devil is in the details. (Arbitrage simply means taking advantage of price differences across markets — buying a cheaper version and then selling it at a higher price to make money.) Even when the January Effect does appear, it does not produce additional returns when accounting for risk. The same is true for other calendar-based trading strategies.

To put it simply, most anomalies, especially those based on relatively simple trading strategies, have been exploited over time. While the market is not perfectly efficient, given the evolution of digital and low-cost trading, abnormalities are easily arbitraged away — or never really existed in the first place. This has been increasingly the case for the January Effect.

In our view, the January Effect is mostly fiction, with an occasional instance of truth — just enough to make people believe it’s a given!

Focus Instead on Your Family and Your Personal Goals

As always, and as we’ve maintained over the past 30 years, we do not believe markets can be timed — especially with very short-term trading strategies. There’s a lack of evidence, especially modern evidence, to suggest that retail investors can benefit from short-term trading around the January Effect or any other time.

We believe this time of year is better spent on many other, more important aspects of life, including spending time with friends and family, rather than looking at your portfolio. If you insist on looking at your portfolio, we encourage you to focus on the long term and to judge your success by your ability to do what you want today and in the future.

Regardless of what happens in any given month, there’s plenty of evidence to suggest that buying and holding great companies over the long term is one of the most effective ways to achieve your financial goals. We are here to review and update your planning and portfolio, adjust your asset allocation, minimize tax implications and take advantage of market volatility for you.

As always, we are here for you…

________

Randy Carver, CRPC^®, CDFA^®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Randy has more than 32 years of experience in the financial services business. Carver Financial Services, Inc,. was established in 1990 and is one of the largest independent financial services offices in the country, managing $2.2 billion in assets for clients globally, as of December 2021. Randy and his team work with individuals who are in financial transition as a result of divorce, retirement or the sale of a business. You may reach Randy at randy.carver@raymondjames.com.

The information contained in this post does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.

Returns are based on the S&P 500 Total Return Index, an unmanaged, capitalization-weighted index that measures the performance of 500 large capitalization domestic stocks representing all major industries. Indices do not include fees or operating expenses and are not available for actual investment. The hypothetical performance calculations are shown for illustrative purposes only and are not meant to be representative of actual results while investing over the time periods shown. The hypothetical performance calculations are shown gross of fees. If fees were included, returns would be lower. Hypothetical performance returns reflect the reinvestment of all dividends. The hypothetical performance results have certain inherent limitations. Unlike an actual performance record, they do not reflect actual trading, liquidity constraints, fees and other costs.

Also, because the trades have not actually been executed, the results may have under- or overcompensated for the impact of certain market factors such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. Returns will fluctuate and an investment upon redemption may be worth more or less than its original value. Past performance is not indicative of future returns. An individual cannot invest directly in an index.

As news outlets release reports about Russia invading Ukraine, inflation rising and global supply-chain issues continuing, the word “unprecedented” is being used — once again. When COVID hit us two years ago, the world began using the word “unprecedented” to describe that situation as well. Indeed, it was a situation most of us had never seen before: quarantines, lockdowns, economic shutdown. The word is used to describe just about any new global situation that arises.

These types of crises, and the subsequent stock-market downturns and recoveries, are serious, but they are by no means unprecedented. Markets and investors tend to overreact to negative news or new events. With each crisis that unfolds, while many people panic and sell assets at low prices, a small group of patient, methodical investors view the stock market collapse as an opportunity.

What’s going on today might seem unprecedented. The stock market is sure to react to events like these, and it may come as a shock to some. However, the past two years in the stock market have also been unprecedented. Last year, the S&P 500 hardly saw a 5 percent pullback, and on average, the market pulls back 14 percent every year…how unprecedented! In March 2020, the market fell about 33 percent in 30 days. It was the fastest drop in market history…unprecedented. However, the market recovered all of its losses in only a handful of months…unprecedented once again!

The Stock Market Will Always Fluctuate

History shows us that markets dip after geopolitical events and often recover very quickly. Ned Davis Research studied the 28 worst political or economic crises over the six decades prior to the 9/11 attacks in 2001. In 19 cases, the Dow Jones Industrial Average was higher six months after the crisis began. The average six-month gain following all 28 crises was 2.3 percent.

On Sept. 10, 2001, the day before the 9/11 attacks, the Dow Jones Industrial Average (DJIA) closed at 9,605.51. The stock market closed for a few days and re-opened 17.5 percent lower, several days later. Just six weeks later, by Oct. 26, the Dow was trading higher than where it had closed on Sept. 10.

The markets correct virtually every year; corrections between 5 and 10 percent in the S&P have been regular occurrences. Since 1946, there have been 84 declines of 5 to 10 percent, which works out to more than one a year. The market usually bounces back fast from these modest declines; the average time it takes to recover from those losses is just one month.

J.P. Morgan reports the impact that pulling out of the market has on a portfolio. Looking back over the 20-year period from Jan. 1, 1999, to Dec. 31, 2018, if you missed the top 10 best days in the stock market, your overall return was cut in half. That’s a significant difference for only 10 days over two decades! Putnam Investments found similar results by studying the data from 2003 to 2018. If you were fully invested in the S&P 500, your annualized total return was 7.7 percent during that time. But if you missed the 10 best days in the market, it dropped to just 2.65 percent.

Don’t Panic or Get Out of the Stock Market; Do This Instead

In times of uncertainty and global turmoil, it’s normal to feel like you need to make a change. In almost all circumstances however, the right move is to not make any lasting changes. Here are some tips to help you ride out the storms.

1. Ignore the news headlines. Often, news headlines are not what actually drive the market; instead, corporate profits tend to have more impact, and those still remain strong.
2. Keep situations in perspective. Regarding Ukraine, the country’s entire economy is around $100B per year. Walmart does that amount of business in three months. The actual economic risk related to this situation isn’t as great as it might seem, given the media coverage. More importantly, our thoughts and prayers go out to those living in Ukraine and their families. The human element is of much greater significance.
3. Consider putting cash to work now. Use tax swaps and convert from tax-deferred to tax-exempt investments to benefit from the volatility. Our team can help you with this.
4. Always remember our three-bucket approach to working with our clients. Your financial plan has cash and bonds built into it, for these types of seasons, so that you don’t have to react out of fear. Our entire team is helping clients one by one. Most of our clients have been able to focus on family and friends while ignoring the temporary market pullbacks and having faith in the market’s comeback. Some people are nervous. We understand, and we hold deep empathy for those feelings and are here for you.

If you have questions for our team, do not hesitate to reach out; we are here for you and your family! Because we take a customized approach based on your individual needs and objectives, you are allocated for today’s market environment. We see challenges ahead with higher inflation and increased volatility, but again, these are not new or unprecedented. Our process is proactive, not reactive. The work we do is not based on forecasts or predictions, but on you, your cash needs and your personal vision.

Remember — although things may seem unprecedented, they are not.

________

Randy Carver, CRPC^®, CDFA^®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Randy has more than 32 years of experience in the financial services business. Carver Financial Services, Inc,. was established in 1990 and is one of the largest independent financial services offices in the country, managing $2.2 billion in assets for clients globally, as of December 2021. Randy and his team work with individuals who are in financial transition as a result of divorce, retirement or the sale of a business. You may reach Randy at randy.carver@raymondjames.com.

The information contained in this post does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.

The stock indexes mentioned are unmanaged and cannot be invested into directly. Past performance is no guarantee of future results. All investing involves risks, including the principal amount invested. No investment strategy can guarantee your objectives will be met.

Unless certain criteria are met, Roth IRA owners but be 59^1/2 or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a ROTH IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

Investing can be an incredibly efficient way to grow your money — but only if you’re consistently smart about it. Over the past three decades Carver Financial Services has been guiding clients to financial well-being we have witnessed decisions that resulted costly mistakes. Now, we all make mistakes; we’re only human. By being aware of them, and by working with us, you can avoid these mistakes and optimize your outcome.

Here are nine of the most common mistakes investors make — along with how we can guide you toward avoiding them.

1. Trying to time the market
   Heeding the adage to “buy low, sell high,” many investors attempt to time the market by waiting to buy when stocks are low, and waiting to sell when stocks are high. However, knowing the exact correct time to buy or sell just isn’t possible, and it can lead to costly mistakes.

In 2021, Bank of America looked at market data going back to 1930. The study found that if an investor missed the S&P 500’s 10 best days each decade, the total return on their investment would stand at 28 percent. If, on the other hand, the investor held steady through the ups and downs, the return would have been a whopping 17,715 percent!

Another study released by University of Michigan Professor H. Nejat Seyhun, examined the market on a daily basis from 1963 to 2004. Professor Seyhun found that in this specific time period 96% of the market’s return happened in only 0.9% of the trading days. So out of the 7,300 days that took place over 41 years, only 135 yielded the majority of invest return. Your odds of guessing the “correct” day to cash out are very low.
Additionally, CNBC publish an article showing what happens if you miss the best 20 days over a 20-year period. Based on their findings and our calculations, if you invested $100,000 on Jan 1, 1998, that money would grow to $177,560 over 20 years. However, if you missed the 20 best days over those 20 years, you actually lost nearly $20,000, ending up with $80,090.
Keep in mind, the market’s best days typically follow the largest drops, meaning panic selling can lead to missed opportunities on the upside.

This is one way in which working with our experienced team can benefit you significantly. Our investment philosophy relies heavily on NOT timing the market. We also do not believe in “buy and hold.” You must take a very proactive approach to re-balancing and reallocating your investments based on your changing needs, market opportunities, and tax law updates.

2. Focusing on how much you make instead of how much you keep
   It’s not how much you make that’s important but how much you keep; net of taxes, fees, and expenses. Our team members are experts at minimizing internal expenses and managing income taxes on a customized basis. Often, people focus on the total return instead of the net — which could still lead to
3. Letting emotions drive your decisions
   “A lot of people with high IQs are terrible investors
   because they’ve got terrible temperaments.
   You need to keep raw, irrational emotion under control.”
   —Charlie Munger

There will always be new challenges along with the return of old ones. The key to investing is avoiding making decisions based on bad information and emotions including fear, greed, and the range of others.

Most investors know it’s unwise to have knee-jerk reactions to market fluctuations, but many find it difficult to avoid that very human tendency. It turns out that our brains are actually hard-wired to react emotionally to information we perceive to threaten us in some way.

Certified financial planner Michael Finke, a professor of wealth management at The American College of Financial Services, explains that there may be a number of psychological biases holding people back from building wealth. He says the part of the brain that allows us to imagine the future doesn’t move as fast as the part that governs emotions. As a result, we might sell off investments just to pacify the emotional part of the brain, instead of thinking ahead.

Finke mentions additional psychological biases that can lead us to make unwise decisions. One is loss aversion. He says the innate desire to avoid any risk that could result in a loss causes many investors to underperform the market. Another is the bandwagon effect, which is following what other people are doing. Finke points to the recent run-up in so-called “meme stocks,” like AMC Entertainment and GameStop, which individual investors flocked to after being prompted by social media. Many lost money amid the volatility.

Working with our experienced team can help you avoid making emotional decisions about your finances. Once we determine what your vision and goals are, we will work to keep you on track for the long term and to weather the inevitable market fluctuations. We are here to guide you on your financial journey and help you achieve your personal vision, whatever that may be.

4. Being impatient
   “The stock market is a device to transfer money
   from the impatient to the patient.”
   —Warren Buffett

A slow and steady approach to portfolio growth can yield greater returns in the long run. History has proven this.

For example, if you had bought Apple stock at the end of 1990, you would have paid 38 cents (split-adjusted) per share. In 1995, 1996 and 1997, the stock was down 18 percent, 34 percent and 37 percent, respectively. Those downturns likely caused many investors to panic and sell. But in 1998, the stock was up 211 percent, and in 1999, it was up 151 percent. If you held on to the stock, the price at the end of March 31, 2021, was $122.15 per share. Your patience would have paid off.

Our Personal Vision Planning Process takes a very international and disciplined approach to investing. We believe that the “buy and hold” strategy is better than market timing; however, it doesn’t take advantage of market volatility. Working with a trusted advisor can help you avoid the instincts, often instigated by impatience, that cause investors to fail. In this regard it’s important to work with a team who is not only technically proficient and has experience; but also understands your personal needs, concerns, and goals.

5. Failing to diversify
   Diversification is the process of investing in a variety of different types of investments so you’re not too exposed to the risks of any one investment. Investors who fail to diversify their portfolios tend to miss out on growth opportunities.

Diversification is such an effective strategy, in fact, that it can increase your overall return without your having to sacrifice something in exchange. In other words, diversification can actually reduce risk without costing you on returns.

6. Hesitating
   “The best time to plant a tree was 30 years ago.
   The second best time is now.”
   —Chinese Proverb
   Just like the tree in the proverb shown above, the best time to invest is early. The longer you leave your investments in place, the more they can grow.

Because of the “magic” of compound interest, time is your friend when investing.
Which means the sooner you start, the better. However, it’s never too late to start investing! The pandemic has prompted a renewed interest in investing. A Schwab survey reports that 15 percent of all current U.S. stock market investors say they first began investing in 2020.

“Compound interest is the eighth wonder of the world.
He who understands it, earns it. He who doesn’t, pays it.”
—Albert Einstein

7. Investing money you might need soon
   Because investments, when they perform well, can boost your assets, it can be tempting to put all your money in them. Yet this can end up costing you if you need money right away for an emergency, and the value is down.

This is another area in which our team can benefit you. We will work with you to put aside an appropriate amount of money in an easy-to-access emergency fund so you don’t need to rely on your investments when you face an emergency or want to make a big-ticket purchase. We can also advise you on lines of credit and other sources of funds for short-term needs that may not impact your portfolio.

8. Ignoring the tax implications of your financial moves
   Taxes are one of the most confusing topics in the world of financial planning. And to make matters worse, state and federal tax laws often change. Our team constantly pursues continuing education to keep up-to-date on the tax laws and other legislation that can affect your portfolio.

One wrong move can have serious tax implications. We encourage you to work with our educated, experienced team to avoid negative tax consequences of financial decisions.

When you work with our team, we will work with you, and your tax expert, to minimize the tax consequences of the investment decisions you make.

9. Having no clear vision for your future

“If you have no destination, you will never get there.”
—Harvey MacKay

We have found that, overwhelmingly, those investors who have a clear picture of what they want in life are more inclined to reach their financial goals than those who have no clear vision.

At Carver Financial Services, our proprietary Personal Vision Planning® process is an all-encompassing approach that ensures we lay the groundwork for a strong and successful investment strategy based on your goals. Often, clients don’t know what is truly important to them. We can help you define this. Your vision for the future serves as your and our road map for the way we invest your money. We want to know what gets you up in the morning and what keeps you up at night — because your vision is our priority, and we are here to help you achieve it. We also believe it’s important to work with a team, rather than an individual. This may provide for a broader knowledge base and continuity in the event one of the team members is no longer available.

Ultimately, the true value we add is being here to listen to you, guide you, advise you and help you chart a course, especially through uncertain times. Often, the most important things we do prevent situations that would have happened if you had not sought help from experts.

Being proactive is always better than being reactive. Understanding what we can and cannot control, and planning accordingly, are keys to success. The value our trusted team of advisors brings to you goes far beyond just good investment advice or peace of mind.

Regardless of what happens, we are here for you. If you have $500,000 or more in investible assets, feel free to reach out to me personally or to our team with questions, or whenever we may be of service. I founded Carver Financial Services more than 30 years ago, with the mission of helping you achieve your personal vision while simplifying your life. We are here to assist you as you navigate both good times and bad on your personal life journey.

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Randy Carver, CRPC®, CDFA®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Randy has more than 32 years of experience in the financial services business. Carver Financial Services, Inc,. was established in 1990 and is one of the largest independent financial services offices in the country, managing $2.2 billion in assets for clients globally, as of December 2021. Randy and his team work with individuals who are in financial transition as a result of divorce, retirement or the sale of a business. You may reach Randy at randy.carver@raymondjames.com.

The information contained in this post does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.

“The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.” – Seth Klarman

One of the more unnerving parts of being an investor is experiencing the market pullback or market correction. Watching your investments fall by 10% (or more) is undeniably stressful, but the truth is: these events are as cyclical as the market itself, as long as there’s a stock market, there are going to be corrections. So, what can you do about it?

Humans hate losing more than they love winning, and for this reason, mistakes are often made when the market starts to dip. Just because market corrections are cyclical, doesn’t mean they’re predictable. Trying to time the market won’t work either, it’s impossible to know how long these things will last, how far the market will drop, or how quickly it will recover.

According to a table created by Merrill, timing the market could prove to be more damaging than holding, aka not touching your investments at all. Merrill evaluated the growth of $1,000 to see what happens when you leave an investment untouched over a 20-year period (Row 1); when you pull it out during the top 10 performing months (Row 2); and when you pull it out during the top 20 performing months (Row 3).

The Risk of Missing Out

	1990-2019	2000-2019	2010-2019
[1] Untouched	$17,281	$3,242	$3,567
[2] Miss 10 top-performing months	$7,000	$1,380	$1,723
[3] Miss 20 top-performing months	$3,363	$722	$1,097

As you can see from the chart above the best overall strategy is leaving your $1,000 investment untouched for as many years as possible.

The fact of the matter is that the longer you’re investing in the market, the more likely you’ll experience a drop. The question is: how will the market correction affect you? Well, there are three different potential outcomes: 1.) You’re negatively impacted by it, 2.) There is no lasting impact on your portfolio, 3.) You actually benefit from the market correction. The outcome is largely up to you, but I’m guessing you’d like it to be outcome three and would at least accept outcome two.

Let’s go over the ways to prepare for, and take advantage of, a market correction so the next time one comes around you’ll be able to benefit from it.

Best Practice #1: Reduce Panic, Increase Planning

As with everything in life, making rash decisions while panicking leads to mistakes. Unfortunately, after decades of watching negative headlines create market volatility, combined with the increasingly hysteric nature of modern-day journalism, it can be tough not to live in a perpetual state of panic these days. You should not allow this panic to translate into how you do your financial planning. Do not make rash decisions in place of planned decisions.

To reduce panic, you must equip yourself with information. Luckily, there are plenty of cases analyzing years of data which can help investors gain perspective on market corrections. For example, when looking at post-World War II market declines, you can see that an overwhelming majority of dips occur in the 5-10% range and take about a month to recover from. This means that if you’re experiencing a dip in your portfolio, there is a non-negligible chance that you’ll recover your losses in a month or so.

Additionally, any decline between 5-20% also only takes a few months to recover from, while a decline between 20-40% takes a little over a year to recover from—this data demonstrates that patience is your friend when it comes to the market.

DECLINES

%	#	Avg %	Avg Length (Mo.)	Avg Recover Time (Mo.)
5-10	84	7	1	1
10-20	29	14	4	4
20-40	9	28	11	14
40+	3	51	23	58

(source)

Obviously, all this data is gathered retrospectively after there’s been time to digest the decline but still, these figures provide a powerful perspective and encouragement. There’s no need to panic when you hear rumors of a market correction looming.

Best Practice #2: Diversify Your Portfolio

It’s not a question of if a market correction is coming, the question is when. Having cash in hand and a list of stocks you’ve been wanting to buy can turn a stressful time into an exciting one. A market correction is the perfect time to diversify your portfolio and an opportunity to buy in at lower rates. Think of it as a sale.

There are a few things to consider while you’re reevaluating your portfolio:

• Consider your stock/bond mix. It’s always good to have a mix of cash, equity, and fixed income. The amount you have invested in each category largely depends on where you are in life, as well as your long-term/short-term financial goals. Market fluctuations shouldn’t cause you to move all your money into bonds just to avoid risk, but should instead be used as an opportunity to see if the reason you purchased certain stocks are valid in regards to your lifestyle.

• Reevaluate your stock allocation. Using the cyclical nature of the stock market to your advantage can help you research which sectors you’d like to move into, and which ones are no longer useful to your financial goals. Overall, it’s best to broadly diversify your stocks, but with so many sectors to choose from, it can be hard to figure out where to invest. Using a market pullback to invest in some exciting sectors can help you take full advantage of the recovery.

Checking in with your portfolio during a market correction is the best way to prepare to make smart money moves when the market recovers.

Best Practice #3: Work with a trusted advisor

Having someone in your corner with an unbiased view will help immensely when it comes to harnessing market corrections to your advantage.  Our team has loads of experience with market corrections and is less likely to be emotionally triggered by the twists and turns of the market. Plus, with more than 250 years of combined experience, our team can help separate panic and emotion from financial decisions.

Your financial advisor will also be able to review both short-term and long-term goals, to give you options which complement your risk tolerance. They will provide you with a roadmap to help you from getting lost during turbulent times in the market.

Our firm has more than 30 years of experience in helping clients. I’ve seen every kind of market and every kind of reaction to it. There have been dozens of events in the past year that have been deemed “unprecedented” and scared people into thinking things were “different this time.” While I don’t want to downplay the tumultuousness of these times, I do want to reassure you that just because things feel unnaturally difficult, doesn’t mean that we can’t base our actions on what has worked in the past. The events may be different, but they always yield the same cause and effect.

I have experienced, first hand, almost 35 years of enormous societal changes, both amazing and horrendous. Even though the cyclical market is hard to pin down, and impossible to time, the fundamental financial decisions that add up to sound investments are not. Our team is here for you, along with our decades of experience, to help make sense of what’s the best financial plan for your personal vision.

Randy Carver, CRPC^®, CDFA^®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Randy has more than 32 years of experience in the financial services business. Carver Financial Services, Inc. was established in 1990 and is one of the largest independent financial services offices in the country, managing $2.2 billion in assets for clients globally, as of August 2021. Randy and his team, work with individuals who are in financial transition as a result of divorce, retirement, or the sale of a business. You may reach Randy at randy.carver@raymondjames.com.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.

Environmental and social issues are dominating headlines. Increasingly we are hearing about environmental, social governance (ESG) investing. Is this just a marketing ploy or is there validity to ESG-focused brands? In order to answer those questions, let’s first break down what “ESG investing” actually means.

ESG in A Nutshell

ESG stands for environmental, social, and governance—these are a grouping of non-financial factors that evaluate the sustainability of a company or fund. The goal of ESG investments is to utilize capital assets to find ways that positively impact society at large, whether it be through social means or environmental ones. ESG investing gives individuals the opportunity to conscientiously grow their portfolios in ways that might better align with their social values.

While “socially responsible investing” may seem like a trendy concept plucked from the Twitter feeds of today, the idea to allocate money for ESG-like securities dates back to the 1950s. During this post-World War II boom, trade unions began investing their considerably large pension funds in altruistic areas like affordable housing projects and health facilities.

In fact, so many individuals and institutions are shifting focus to ESG-considerations that global sustainable fund flows hit a record high of $45.6 billion in Q1 of 2020. The United States was responsible for contributing a whopping $10.4 billion to that total.

Is ESG Investing Right For You?

Okay, so sustainable investing is popular, but does it work? Various studies have shown that ESG investments are becoming more competitive both in price and performance. An article released by The Forum for Sustainable and Responsible Investing curated studies from many reputable sources, stating that, “investors do not have to pay more to align their investments with their values, or to avoid companies with poor environmental, social or governance practices.”

Another recent report published by Money Management Institute and The Investment Integration Project summarizes why investors are beginning to consider ESG-inclusive portfolios:

• Companies with sustainability in mind are better at managing risk and have “less systemic volatility than their conventional peers.”
• Capital costs are lower at companies that participate in sustainability practices, which encourages growth, shareholder returns, and often positively impacts the value of the company.
• Private equity and debt-focused sustainable investments are shown to achieve market-rate returns.

With sustainable investing growing in popularity, it’s important to work with a knowledgeable advisor who has experience and knowledge in the area of ESG investing to see if it is right for you. Unfortunately, there are a lot of companies that may falsely use the ESG label to attract more investors, when in reality they are not sustainable brands. This misleading behavior is called “Greenwashing.”

Don’t Get Fooled by Greenwashing

It can be hard to spot which companies are actually invested in making sustainable change and which companies are taking advantage of a trend. Without concrete regulations and/or definitions of sustainable criteria, it’s up to the company to decide whether or not they fall under the ESG classification—which means there’s lots of room for interpretation. As the popularity of ESG investing grows there is a growing movement to standardize metrics for ESG and put in place requirements to use this term.

Given the ambiguity of the term ESG, here are a few things to help you do your due diligence and look out for and avoid Greenwashing in your funds. Of course, working with a trusted advisor is the best way to make sure the funds truly meet your personal goals.

1. Do your research. If a company or fund makes a claim about their ESG-practices, check their website and certifications to make sure this claim is backed up. Vague or inconsistent claims are a red flag. Actual ESG companies should be completely transparent and proud to share their data.

2. Watch what they do, not how they market. A popular greenwashing practice is using buzzwords on product packaging, such as “all-natural,” “earth-friendly,” “non-toxic,” “100% organic”, etc. These words are useless without actions to back up their existence. Just because a house cleaning brand has a product with the word “green” on the label, doesn’t mean the company falls into the ESG category.

3. Be familiar with the rules. For example, many products are quick to point out that they are CFC-free. CFCs are gaseous compounds that can be found in refrigerants, cleaning solvents, and aerosol propellants. While getting rid of toxic gas is certainly an environmental win, CFCs are now banned. So, the claim “CFC-free” may look good on paper, but in reality, it’s required by law and therefore not a good indicator of sustainability.

Morningstar offers a Sustainability Rating tool to help you figure out if a company you’re interested in investing in has a strong background in sustainability. Using an objective facts-based tool such as Morningstar may help you avoid falling victim to false marketing.

Overall, the growing interest in ESG investing marks an opportunity for those who are interested in taking on a more socially and environmentally, conscientious investing strategy. However, data is key when parsing through all the investments claiming to be socially responsible. While there aren’t universal metrics to measure sustainability, regulators are looking at creating standards for labeling investments as such.

Whether you work with a trusted advisor or on your own, ESG investing is yet another option to grow your wealth. Many investors may not be concerned about environmental or social compliance and simply want to grow their portfolios; ultimately, ESG may still make sense as part of a well-diversified plan offering potentially more stability than non-ESG offerings.

With the current push for the use of electric vehicles, alternative energy, and reductions in carbon emissions, ESG investing will continue to receive more attention.

Since 1990 the mission of Carver Financial Services has been to Make People Lives’ Better. As part of this mission, we offer ESG compliant strategies. ESG is certainly not for everyone and continues to evolve. We can discuss what is important to you and figure out how to invest your overall portfolio in a way that meets both your needs and personal values whether that includes ESG or not.

Randy Carver, CRPC^®, CDFA^®, is the president and founder of Carver Financial Services, Inc., and is also a registered principal with Raymond James Financial Services, Inc. Randy has more than 32 years of experience in the financial services business. Carver Financial Services, Inc. was established in 1990 and is one of the largest independent financial services offices in the country, managing $2.1 billion in assets for clients globally, as of July 2021. Randy and his team, work with individuals who are in financial transition as a result of divorce, retirement, or the sale of a business. You may reach Randy at randy.carver@raymondjames.com.

The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Randy Carver and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Links are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors.

Incorporating sustainable investing criteria into the investment selection process may result in investment performance deviating from other investment strategies or broad market benchmarks.