ImpactAdvisor · Wealth Management Philosophy: Ultra-Tailored; Tax-Aware

Published Articles & Quotes:

What if the Fed is Right About Inflation?

Sept. 29, 2020

Today’s high-priced bonds come with significant interest rate risk.

The 10-year Treasury bond yields 0.65% today.
That’s only $6,500 of income for every $1 million in your portfolio.

The Fed is committed to 2% inflation, and recently announced policy allowing inflation to run “modestly above 2% for some time”.

They project 1.7% inflation next year.
Every 1% increase in the 10-year yield translates to a ~10% loss of market value.

Meanwhile, in this new era of unconstrained deficit spending, Congress is just getting started.

Republican tax reform set a new precedent while at full-employment: $1 trillion budget deficits.
Existing Medicare and Social Security commitments require more borrowing.
There’s bipartisan support for a major infrastructure bill.
And we may be weeks away from a Democratic mandate for additional spending on environmental and social priorities.

If your 60/40 or 40/60 portfolio holds a traditional allocation of longer-term bonds, you are betting against the Fed.

How exposed are you to higher rates?

In our free financial planning app, you can inflation stress-test your portfolio against your retirement goals:

Warren Buffett's Advice on Market-Timing for Investors

“People that think they can predict the short-term movement of the stock market — or listen to other people who talk about (timing the market) — they are making a big mistake”

- Warren Buffett -

Sitting in cash can be, essentially, market-timing.
Market-timing, as an investment strategy, is a very difficult one to defend -- for both amateur and professional investors alike.
“Trying to time the market” is the #1 mistake to avoid.

“I have never known anyone who could consistently time the market. And in fact I've never known anyone who knows anyone, who was able to consistently time the market”.

- Burton Malkiel -

Sustainable, Social-Impact Investing: Does it Pay?

“Most investors believe there is a trade-off between one’s values and one’s investment returns. This is left over from the days of overpriced investment products”
“Historically, on average, socially selective funds underperformed the market for the same reason other name-brand, actively managed funds did: high fund expenses,” said Jason R. Escamilla, CEO of Impact Labs in San Francisco
Socially selective funds were a niche market that required a marketing & sales budget to attract investors, he explained.

Using investments to make a difference
Mass Mutual, July 2018

Still Sitting on Cash? Here's the #1 Chart…

Cash levels in the U.S. are extraordinarily high -- still!
Just focus on the 'cash' buildup and where it is likely to go next.
Interest on cash deposits: CDs, money market, etc. does not even keep up with inflation -- still!
You, quite possibly, could miss the next big run for U.S. stocks as that cash gets invested.
This unprecedented level of dry powder can help absorb the inevitable shocks to stocks, potentially providing downside protection.

2021 Update: Real-time 'cash' as % of GDP: St. Louis Fed's M2/GDP.

⚠️ Spoiler Alert:
The dry powder/sideline cash is still there, unlike previous market-peaks.

The Highest Tax in the English-Speaking World is in this U.S. State

When you graduate to investing taxable money -- outside of your IRA/401(k) -- it’s a whole new ball game: taxes matter.
Californians can give up, in taxes, a third to half or more each year’s interest, realized stock and bond gains, etc.: 'short-term investment income'.
Only France and Denmark have a higher long-term capital gains tax than California (of the 35 OECD nations).
Most investment strategies are optimized on something other than after-tax profit…the same about most investment products on the market.
You can build wealth faster and with less risk by being tax-smart.

Know your tax rates. Make better financial decisions: TaxImpacts.com

NASDAQ & Home buying in the SF Bay Area: Don’t Bring a Knife to a Gunfight

Homebuyer? The NASDAQ is the leading indicator to watch.
- Today, the five largest companies in the world by market capitalization are based in the Bay Area or have a major presence here.
- Of the 12 largest companies listed on the NASDAQ, all but two, Comcast and Pepsi, are Bay Area companies
- And all ten use equity as a meaningful component of compensation
- New all-time highs, +58% since the start of 2017
There is no scarcity of additional homebuying pressure over the next several years:
- Sideline cash
- Record corporate profitability
- Tax reform is monumental
If you are waiting for other homebuyers to put down their guns, you could be waiting a long time — especially in the San Francisco Bay Area.

Medium, Aug. 28, 2018

Pitfalls of Robotically Investing in Bonds

August 29, 2017 (2.098% yield)

10-year Treasuries are a bad investment right now.
You can expect to lose value over time, after taxes and inflation.
Taxes matter; inflation matters.
A well-constructed investment portfolio needs to take into account current expected real returns and not robotically follow outdated, and thus unrealistic, portfolio allocation assumptions from a different era.

1-yr later, this bond fund was trading 5% lower: iShares 7-10 year Treasury ETF chart

“I don’t know WHEN to buy stocks, but I know WHETHER to buy stocks.”
‑Warren Buffett

Warren Buffett on CNBC interview:

“We’re buying stocks this morning.”
“…considerably more attractive than fixed income securities”
“…stocks generally — they’re businesses; they’re American businesses: $30 trillion worth of ’em — and they look cheaper than…generally, real estate”

“Benefits to direct indexing:
better customization and even greater tax efficiency”

Jason Escamilla, CEO of ImpactAdvisor, uses ETFs, closed-end funds and mutual funds for part of his business, but his firm specializes in direct indexing.
There are two benefits to direct indexing, he notes: better customization and even greater tax efficiency.
In a high-tax state such as California, direct indexing makes a big difference, Escamilla adds.
The tax benefit of direct indexing is that the software allows for greater ease of rebalancing and tax-loss harvesting, along with minimizing tracking error. But it’s not for all clients.
There are times when ETFs make more sense than direct indexing, such as for younger clients who are just starting to build wealth, or for those clients whose holdings reside mostly in IRAs

Advisors & ETFs: A Perfect Match?

ETF.com, Sept. 2020

“Historical valuation fundamentals are less important than the basic laws of supply and demand”

“Historical valuation fundamentals are less important than the basic laws of supply and demand, which always prevail, however volatile along the way,” says Jason Escamilla, CFA, CEO at ImpactAdvisor, an advisory in San Francisco.
He points out that cash on the sidelines is at all-time highs, as everyone else waits for the dip, too, indicating that investors have been waiting for the pullback for some time. That strategy of waiting, too, may be a crowded trade that ends up offering investors only modest returns.

We’re in a recession — will the stock market ever act like it?

Bankrate, June 2020

“When you’re looking to park taxable cash, there are smarter places than a money market fund”

Jason Escamilla, CEO of Impact Labs, said “municipal bond funds in a high-tax state like California are relatively more desirable after tax reform. This is because marginal tax rates can be higher and fewer people get hit with AMT after tax reform.”
He cited this example: “Married, two kids; $430,000 of income, no deductions and (after taxes)

you keep less than 48 cents on the dollar in money market interest/dividends.”

“And don’t forget about the Fed’s 2% inflation target over time: expect a 2% inflation hit,” he said.
“A higher-yielding 2.5% money market fund rate does not even beat inflation once you get into a meaningful tax rate, e.g., making enough to cover the cost of a family today. Even in an IRA, you will eventually have to pay the tax man in nearly all scenarios.”
“When you’re looking to park taxable cash, there are smarter places than a money market fund,” he said, noting how meaningful it was to avoid standard interest tax rates in California and other high-tax states.

We’re in a recession — will the stock market ever act like it?

The Bond Buyer, March 2019

“Stack the deck in your favor for retirement by having time on your side,”

“Time is a special thing...”
“...you can stack the deck in your favor for retirement by having time on your side ,” says Jason Escamilla, chief investment officer of ImpactAdvisor in San Francisco.
“...putting a long time horizon on your investment planning.”

Making One Smart Move as a New Grad Can Set You Up for Financial Independence

Acorns+CNBC, June 2019

“With Apple, you have a well-run growth company with extraordinary profit margins at a reasonable valuation...further de-risked when you consider...”

Jason Escamilla, Chief Investment Officer with San Francisco based ImpactAdvisor, says, “With Apple, you have a well-run growth company with extraordinary profit margins at a reasonable valuation.”
“As a long-term investment, it is further de-risked when you consider the company's demonstrated preference for buying back shares over pursuing low-margin and higher-risk growth.”
Apple has repurchased nearly $73 billion of its own stock over the past four quarters.

12 Stocks You Should Never Sell
Kiplinger, Dec. 11, 2018

in 2019 Apple returned 89%, roughly doubling since this was published

Ten years after 2009: S&P 500 is 4x; international markets have only doubled

Since 2009 "the S&P 500 has roughly quadrupled, while the MSCI All Country World ex-US, measuring international markets, has only doubled, he noted.”
“Meanwhile, the strength of the US dollar this year has been painful for US investors who allocated overseas,” Escamilla said.
"More accommodating monetary policy and lower valuations in the international markets present an attractive opportunity” -Jason R. Escamilla, CEO of ImpactAdvisor

Fund Intelligence, Dec. 13, 2018

“Factor investing essentially distills what’s been the largest driver of the performance”

Jason Escamilla, CEO and Chief Investment Officer of ImpactAdvisor, said.
It’s everything that the industry wants: they all want something shiny, something interesting to sell, and this is a cost-efficient way to do it that also works well with the ETF structure.”

Fund Intelligence, Nov. 15, 2018

Why 2018 is not like 2008

We are not always bullish on the market

“No doubt (in 2008) I was very bearish on the market, launching a short-fund most of 2008.”
"Today, our economy and corporations are among the most efficient in the world. The number of blatant signs of excess pales by comparison with 10 years ago.”
"Meanwhile, the social effects from 10 years ago cannot be underestimated… Lehman and Bernie Madoff left individual investors highly skeptical."
"The new visceral skepticism today helps keep the industry in check."

A Decade After Lehman's Collapse, Some Say It Can Happen Again
Bisnow, Sept. 11, 2018

“What's your edge over the person selling to you?”

"As an investor, you have to ask yourself, if you are getting into bitcoin today: what's your edge over the person selling to you?" Escamilla says.
"Simply looking at a chart showing the price rise is not enough,"
For bitcoin or any competitively traded second-hand asset like shares of publicly traded companies.

Should I Invest in Bitcoin and Blockchain Technology?
U.S News, Nov. 13, 2017 (~$6K/BTC)

“This provides a margin of safety or potential for better resale value at some point in the future”

"Escamilla says the current 8% discount is greater than the fund’s 12-month average discount.
"This provides a margin of safety or potential for better resale value at some point in the future, he says."

8 Best Municipal Bond Funds to Buy and Hold
U.S News, May 9, 2019

The superior model in High-Performance Wealth Management is 'human + machine'.

It's not a question of 'human vs. machine'.
As with Freestyle Chess, the superior model in High-Performance Wealth Management is 'human + machine'.
"Human advisors have a good sense of the value of their client's time and when to make the call," says Jason R. Escamilla, CFA, CEO and chief investment officer at ImpactAdvisor in San Francisco.
"When tax reform passed last year, days before the year's end, we were able to save our clients thousands of dollars each with tax-smart, last-minute action items. There was no iPhone app making those phone calls."

How AI Will Change Investing
U.S. News, Oct. 16, 2018

“Being emotional is not an edge in investing.”

For Jason Escamilla, CEO of ImpactAdvisor, a wealth management firm that focuses on values-based investments, emotions and money are inextricably linked, as values-based investments are often driven by emotional responses to causes.
For example, an investor may choose not to invest in companies that he or she sees engages in practices detrimental to the environment.
But "…Being emotional is not an edge in investing," he said.

The Newest Metric for Financial Success: Customers’ Emotions
Tearsheet, August 2017

Tax Planning for Professionals

Jason gives an overview of the tax considerations professionals should consider and what can be done to help.

MIT Sloan School of Management, Dec. 2018

CNBC video: Warren Buffett

on the markets, valuation of stocks vs. bonds and corona virus

Skip ahead to 1:50:00 for our question to Warren Buffett

CNBC, Feb. 2020

Non-profits Get a Raw Deal in this Tax Bill

December 31, 2017

Mainstream philanthropists and non-profit organizations drew the short straw.
If you regularly make an impact with philanthropy, but otherwise, you have few deductions, you may have lost your tax deduction from donating, especially if you are married.
If you are married, in 2018 you get a $24K standard deduction just for breathing.
If single: $12K.

NOTE: Tap here for the fastest marginal tax calculator on the Internet. Within seconds you can estimate your tax benefit from charitable gifting in 2018: TaxImpacts.com

Next 24-hours: make up to 30%+ with this ‘trade’, after-tax.