Guest Post: Where to Go When Cash Is King

James Sanford of Sag Harbor Advisors

James Sanford of Sag Harbor Advisors

With interest rates remaining low, many investors wonder how to evaluate the safety of various places to keep cash. Max invited financial advisor James Sanford of Sag Harbor Advisors, a performance-fee-based wealth manager, to talk about how best to think about choices for cash in a portfolio.


By James Sanford

With the Federal Reserve now expected to wait at least until the December meeting to end 8 years of zero interest rates, and some strategists putting the first lift-off out to March or June of 2016, it’s time to revisit where to put your cash when cash is king. Two-year Treasury notes are now down to 63 basis points. Emerging market weakness in China and commodity-centric nations led to a 12% decline in the S&P 500 from July through September 28, and a surge in the Volatility Index (VIX) to over 40. If you’re with me in the camp to move a substantial amount of the portfolio to cash after the Central-Bank-fueled reversal rally of more than 10% since October 1, it’s important to understand where your broker or advisor places your cash, which is called the “cash sweep.” If swept into money market funds, you’re not in cash at all, but merely a basket of short-term risky securities that earn a paltry yield of zero to 15 basis points.

First, these underlying securities contain corporate credit risk of default like any other corporate bond. Second, there’s no legal guarantee of a “par put” from the manager. Money market funds routinely maintain a fixed $1.00 par value, rather than mark to market, a convenient shell-game trick which completely hides the underlying volatility of the basket of securities in the portfolio, convincing the holder he owns a “cash equivalent.” What he actually owns is a portfolio of risky corporate senior unsecured-debt obligations, which despite their 7, 10, or 90-day maturity, are equal in recovery and default risk to corporate long bonds maturing 10 and 30 years from now. Some money market funds hold tax-free municipal bonds. These are commonly considered “risk free,” which is absolutely not the case, as investors learned the hard way in Detroit, several cities in California and Rhode Island, and, soon, Puerto Rico.

Usually the portfolio in a money market fund doesn’t move at all in price, due to its very short duration. That’s until a shock event hits one of the securities, which was the case with the Lehman Brothers default. Lehman, opened up Monday morning, September 15, 2008, at a bid-offer of $10 to 12 cents on the dollar.  Suddenly this “cash” equivalent lost 90 cents on the dollar. Roughly 35 to 40% of all investment company assets are comprised of money market funds, with 80% of corporations using money market funds to manage their cash balances, and 20% of household cash balances comprised of money market funds, according to a 2009 SEC report.

There is an investor perception that money market funds are insured by the manager due to the “never break the buck” concept. In fact, there is no legal requirement or guarantee that money managers must “never break the buck” or shield investors from losses. Many managers in 2008 compensated investors for losses in money market funds, because it was good for business and they had the capital. Those without the capital, such as the Reserve Fund, did not. Nobody legally had to.

So what advice would I give investors, as a financial advisor? Keep your cash in short-term T-bills? But there is very little if any interest. Take duration risk on longer dated Treasuries?  No.

The answer is more obvious then we think: it’s your common bank savings account. Investors can earn up to 1.1% on internet-only savings accounts that are 100% FDIC guaranteed, a guarantee as solid as U.S. Treasury bonds, yet one that offers overnight liquidity and no duration risk. In fact, investors would have to go all the way to the three-year note to earn a yield equal to the highest available online savings rates of 1.1%.  The counterparty risk of the bank offering the rate is immaterial. As long as it’s FDIC guaranteed, even in the event of an FDIC bank seizure, accounts holders with $250,000 or less, or $500,000 in a joint account for couples, will have unrestricted access to their cash. If the FDIC can’t honor its agreement, all investments will be set to zero. That would be the equivalent of a U.S. government default.

Advisors often don’t like using a savings account as the cash sweep option, as they can’t control the assets. At Sag Harbor Advisors, our clients’ advisor accounts at our custodian are linked via the ACH system to any bank account of their choice, and clients sign over authorization to draw specified funds back to the advisor account should we see market opportunities. For cash holdings that are well north of the FDIC limits, MaxMyInterest is the only way to efficiently manage funds.

Ask your advisor where your cash sweep is, what it’s yielding, and you might find it’s not really “cash” at all.  

 

5 Reasons to Offer a Financial-Planning Benefit to Employees

Max recently announced a partnership with human-resources firm Questis to make Max membership available to companies using Questis to provide benefits to employees. We asked our friends at Questis to tell us why companies should think about employees’ finances.


 

By Anthony Del Porto

When employees have personal-finance benefits through their companies, they don't have to bring their financial issues to work.

When employees have personal-finance benefits through their companies, they don’t have to bring their financial issues to work.

Employers need to be serious these days to attract and keep employees. Most benefits offered today are commonplace, so they don’t set employers apart: medical plans, dental plans, vision plans, and transit passes are all typical.  Now employers are looking at financial planning benefits such as those offered by Questis as a way to not only attract employees, but also improve their performance at work as well. Here are five reasons why.

  1. Solve employees’ financial problems

American workers are in a rough place financially. 76% live paycheck to paycheck, 46% have less than $800 set aside for emergency funds, and 31% have zero money saved for retirement.  It’s not that employees don’t have options or benefits available to help us, but it can be hard to properly prioritize where to put money.  Financial planning benefits provide the guidance needed to tackle this widespread issue.

2. Reduce work-time distractions related to personal finance

The distractions of personal finance issues greatly reduce productivity in the workplace.  Financial stress affects people negatively, much like any other stress.  It becomes hard to concentrate on the work at hand if employees are worried about overdue bills, college savings, and retirement.  All of this stress adds up.  If a financial-planning benefit is available to clean up staffers’ finances, they don’t have to bring those issues to work.

3. Compound the power of better financial habits by starting early

Too few employees have an emergency fund. If they save $10,000 in an interest-bearing savings account that earns 1%, rather than the average 0.09%, they will earn $100 by the end of the year. This is just one small change that can make a big difference. By looking over an employee’s entire financial profile, even more money-saving and money-generating ideas can be found.  With the proper assistance, each employee can figure out how much money he or she will need for retirement and start taking the proper steps now to get there.  The earlier one gets started saving in the right ways, the less one will have to put in on a monthly basis — or the earlier one can retire.

4. Lighten HR’s load

When employees approach HR with their financial questions, it puts an unfair burden on HR, which typically isn’t equipped to handle it.  Bringing in a financial-planning service gives HR a place to refer employees to get the best advice.  This is particularly valuable when employees are faced with more complicated options than usual, like a pension buyout plan.  

5. Provide accountability

Though the options available for employees’ finances can be complicated, the steps required to make the correct changes are usually fairly easy. Everyone just needs a little push. Having a financial planning benefit means that will not only will employees be guided to do what is best, but also someone will check back to make sure they are doing it. Sometimes taking the first step to tackle something as daunting as a retirement plan looks scarier than it is, so having someone who knows exactly what to do is crucial.

The War on Terroir: A New Benchmark for Brunellos

Valerie Bilgri and Ben Hammer of DC's VBH Wines.

Valerie Bilgri and Ben Hammer of DC’s VBH Wines.

We invited Ben Hammer and Valerie Bilgri, passionate wine drinkers and foodies, to contribute this guest post on how to think about wine choices. Ben and Valerie are the cofounders of VBH Wines in Washington, D.C. They offer personalized wine consulting, tastings, and events, and introduce small-lot wineries to new consumers. 


 

By Valerie Bilgri and Ben Hammer

Looking for a wine that’s drinkable now and will be even better if stored properly for several years? Look no further than the crop of 2010 Brunellos that have just come to market.

“This is the new benchmark for Brunello. It’s the vintage of a lifetime,” says Jared Prager, a Culinary Institute of America grad, and manager of Bell Wines in the Dupont Circle area of D.C.

Brunello di Montalcino is one of Tuscany’s classic wines, along with famous cohorts Vino Nobile di Montepulciano and Chianti.  Brunellos are made exclusively from Sangiovese grapes grown on the slopes around Montalcino, a Tuscan hilltop village 20 miles south of Siena.

Weather-wise, 2010 was described as a near-perfect for growing conditions.  Now, after the required five-year aging period, the vintage is finally hitting the market.  Industry experts are describing the 2010 Brunellos as full of more character and finesse than in years past.  Brunellos characteristically are known for their dark fruit, tannic, and earthy characteristics. All are still present in the 2010s, but with added layerings of spice and aromatic characters.

Jared Prager, manager of Bell Wine & Spirits in DC, and Ben Hammer of VBH Wines, review some of the 2010 Brunellos that have just become available.

Jared Prager, manager of Bell Wine & Spirits in DC, and Ben Hammer of VBH Wines, review some of the 2010 Brunellos that have just become available.

Brunellos are terrific for aging, and most of the new releases are recommended for cellaring at least a few years before popping the cork.  That said, many of the 2010s are quite open and drinkable even now, eliminating the anticipatory wait to see if the vintage lives up to its reputation.

Here are a few recommendations:

 

2010 Argiano – Brunello di Montalcino DOCG – James Suckling from Wine Spectator rates the Argiano 98 points, describing it as a “powerfully structured wine with fabulous grilled-meat, granite, dried-berry and flower-petal character. Full-bodied, chewy and intense. Great structure. Extremely long and intense. Sexy austerity.”

2010 Fossacolle – Brunello di Montalcino DOCG – Wine Advocate rates the Fossacolle 93 points, noting that the wine is “bursting” with dark fruit but also displays good aging potential.  Will be even better in five years.

2010 Valdicava – Brunello di Montalcino DOCG – James Suckling awards this Valdicava 99 points, with the promise of a bright future:  “Absolutely stunning aromas of nectarine, orange peel, sweet black cherry, plum, flower, licorice and mushroom. Full body with layers of ultra-fine tannins and hints of tangy acidity. Such beautiful length and beauty to this wine. It’s powerful and structured but shows a gorgeous finesse and length. Truly wondrous. So long and refined. The texture is phenomenal. Better in 2016.”

The War on Terroir: Sharing the Holiday Cheer

1864 Blandy's Bual Madeira (Wine-Searcher.com)

1864 Blandy’s Bual Madeira (Wine-Searcher.com)

We invited Ben Hammer, a passionate wine drinker and foodie, to contribute this guest post on how to think about wine choices. Ben is a strategic communications advisor for technology, media and entertainment companies. His firm, Hammer Strategies, is based in Washington, D.C.

By Ben Hammer

The holidays often stir up memories of presents that brought excitement to young lives — a remote-controlled sports car, pint-sized toy kitchen, or a new pet. Now, as we get older, we often exchange bottles of our favorite refreshment with friends and business partners. Whether you’re catching up with old friends or attending a special holiday dinner, a top-notch bottle of wine is an excellent gift to spread cheer. So, what are some options for giving an extra special bottle of wine to tell someone they’re an important part of your life? We asked some wine experts for their views. Here’s what they told us:

Shem Hassen, Co-Owner, Arrowine in D.C. and Arlington, Va.
$150: Corton-Charlemagne Grand Cru, Domaine Denis Peret et Fils 2012

A lot of Corton-Charlemagne is very rich price-wise, but this is a lot more reasonable. And the minerality and acidity is so precise. It’s like drinking champagne without the bubbles.

$160: Cade Estate Cabernet Sauvignon, Howell Mountain, Napa, CA 2011
This is the second label to PlumpJack. If you try this one compared with a second growth bordeaux, this is good, something you can drink right away – not like you have to wait 10 years. It’s something you can open right away and drink without wasting a lot of money.

$300-$600: Mommessin Clos de Tart Grand Cru Monopole, Cote de Nuits, France
If you love Burgundy, and when you get to the Grand Crus, you stop there, it’s like Clos de Tart is one of the pioneers of wine-making, from 1100 [AD]. They make only one wine, it’s not like everyone else. Once in a while they make a second if they have extra left over.

Dean Myers, Sommelier, Brasserie Beck, Washington, DC

$65: A great gift idea for a client would be a bottle of Justin Vineyards & Winery Isosceles, Paso Robles. This is the wine that put the Paso Robles powerhouse on the map, and a wine I continually come back to. Cabernet Sauvignon blended with a touch of Cabernet Franc and Merlot, it’s Bordeaux-inspired but with California drinkability both now and later. I found 2010 on shelves the other day, but 2011 is the current release.

$600-$750 (magnum): If you’re like me, opening a bottle of wine is about sharing it with those who are close to me and who will appreciate what’s on the inside of the bottle. So when buying for a special meal, I go big or go home (literally). Buy a magnum and be that more popular. In this case, something that goes with a holiday meal and will warm you up from the temperatures outside, I’d go with 1.5 Liters of Chapoutier Hermitage Le Pavillion. 2011 is out now and got 100 points from ol’ Bobby Parker. But for drinking now, the older you can find, the better.

Tami Hatridge, Landini’s, Old Town Alexandria, VA:

$1,000-$1,500: Domaine Armand Rousseau Pere et Fils Chambertin Grand Cru, Cote de Nuits, France
“A very complete wine even at this young stage. Dark fruits, blackberries, herbs, minerals and spicy flavours. Generous mid-palate with velvety tannins and long finish. Love the silky texture of this wine,” says Jeannie Cho Lee, Master of Wine at Asian Palate.

$4,000: Magnum of same (Domaine Armand)

Christianna Sargent, Sommelier, Coppi’s organic, Cleveland Park, DC; and rep. with Monsieur Touton Selections:

$89: Errazuriz Don Maximiano Founders Reserve, Chile
“The 2007 Don Maximiano Founder’s Reserve is composed of 82% Cabernet Sauvignon, 6% Petit Verdot, 6% Cabernet Franc, and 6% Syrah that spent 20 months in new French oak. A glass-coating opaque purple color, it surrenders an enticing nose of toasty new oak, graphite, scorched earth, cinnamon, clove, violets, blueberry, and blackberry. On the palate, it reveals a suave personality that combines elegance and power. Impeccably balanced, it has the structure to evolve for 4-6 years and should provide pleasure through 2027,” writes Robert Parker in The Wine Advocate, scoring it a 93.

$140: Quintessa Red, Rutherford, Calif.
“Attractive wine to drink young – green herbs and capsicum notes with dark berry fruit. Wine offers fresh acidity and firm tannins with mid-palate that is slightly hollow. Most blocks were picked before the big rain. There was an optical sorter used during harvest in this wet vintage. Tasted in: Napa Valley, USA,” says Asian Palate’s Jeannie Cho Lee.

$100-$250: Rene Bouvier Charmes-Chambertin Grand Cru, Cote de Nuits, France, 2005-2012

$221 (half bottle): 1983 Avignonesi Vin Santo di Montepulciano, Tuscany, Italy

Any wine that’s high-end from them. “Indicative blend: Grechetto, Malvasia Toscana, Trebbiano. This is the second most highly rated Vin Santo wine (based on critic scores): the 1997 vintage was given a score of 97 out of 100 by The Wine Advocate; and the 1999 vintage was given a score of 97 out of 100 by Wine Spectator. Ranked second for number of awards won among wines from this region: the Vinibuoni d’Italia awarded the 1999 vintage Golden Star and the 1998 vintage Corone,” says Wine-Searcher.com.

$400 (half bottle): 2001 Chateau d’Yquem, Sauternes, France
“This beautiful Sauternes offers intense aromatics packed with overripe pineapple drenched in honey, roasted nuts, apricots, nectarines, white peach, flowers, orange rind and honey in the complex perfume. Thick, rich and intense, with the viscosity of motor oil, along with tropical fruit dripping with honey and the perfect amount acidity to give this elixir life, 2011 Chateau d’Yquem is majestic,” says the Wine Cellar Insider.

$185-$750 and $1,000-$10,000: Blandy’s Bual Madeira 1905, 1863 or 1864
“Critics have rated this as the best available among Madeira wines… Ranked second for number of awards won among wines from this region: the International Wine & Spirit Competition awarded the 1969 vintage Gold Outstanding; the Decanter World Wine Awards awarded the 1969 vintage Gold; and the Decanter World Wine Awards awarded the 1968 vintage Gold,” says Wine-Searcher.com.

The War on Terroir: On The Urge to Splurge

Vietti Barolo Castiglione

We invited Ben Hammer, a passionate wine drinker and foodie, to contribute this guest post on how to think about wine choices. Ben is a strategic communications advisor for technology, media and entertainment companies. His firm, Hammer Strategies, is based in Washington, D.C.

 

By Ben Hammer

There’s always a reason to go beyond your comfort zone and buy a lot more wine for that special occasion. Old friend in town? Promotion? Milestone? Closing that big business deal? Or asking your future spouse’s parents for their blessing? Wine has been used as a sacrament for millenia to separate the holy and monumental from the mundane. So we asked a handful of our favorite oenophiles about their favorite picks for a splurge selection.

Here’s one of my own picks:

Vietti Barolo di Castiglione Falletto 2010, Nebbiolo from Piedmont, Italy. One of the grand-daddies of Italian barolos, Vietti is hands-down always a top pick for a moderately priced wine. This bottle goes for about $50 and is an unfiltered treat from a label that makes about 5,000-6,500 cases a year. Give it some time to breathe and open up. Decanting could be a good idea. Would go very well with a lamb ragu. And the bottle and label is beautiful, a work of art.

 

Warren Leonard, Weygandt Wines, DC:

Grower Champagne hands down. They know their terroir, grow their own grapes and many are in the extra brut and brut nature level so relying on the grapes, not dosage.

 

Erik Hope, former professional chef at Gerard’s and Cashion’s in DC:

d’Arenberg The Dead Arm Shiraz. Apart from sentimental value, I think it embodies what a great Australian Shiraz should be. Earthy, lots of dark fruit, great structure. And consistent from vintage to vintage.

 

Na Lee, Director of Special Events, Bordeau LLC, Table Restaurant, 42 Degree Catering, DC:

’94 Dalla Valle Maya or most any Harlan Estates. Closest you can come to meeting a God figure in a bottle of grape juice.

 

Jon-Christopher Bua, former Clinton Administration communications official:

Cote Rotie La Mordoree via ‘Chapoutier’ 95, 98, 2005 or 2006. Enjoy.

 

Chris Wilson, Oya restaurant, Penn Quarter in DC:

For something interesting and unusual, a rock-star splurge – Caduceus Cellars “Judith” a red blend. From Arizona. Super-small production. Made by Maynard James Keenan of the band Tool.

 

John Lonergan, Managing Director, Mercury in DC:

Pommard region in Burgundy. Or Cote Rotie in the Rhone Valley. Chapoutier. Or “Brune et Blonde” from Guigal in Pommard. Jean Perrin.

 

What’s your favorite pick for a splurge, and where is the best store or restaurant to do it? Email me at benhammer@zoho.com to let me know.

 

The Battle of Financial Attitudes: Old vs. New

The new way of thinking brings transparency and simplicity to investors.

The new way of thinking brings transparency and simplicity to investors.

We invited our friends at FeeX, a service that helps investors figure out what fees they’re paying on their retirement accounts, to contribute this guest post.


By Molly O’Brien

Community Manager, FeeX

Unless you’ve been living under a rock lately, things in the finance world aren’t what they used to be. We’re living in an era when it’s never been easier to make your money work for you, and with the new ways we manage our finances also come changes in the way we think about our finances.

Working at FeeX, an online tool that helps people find and reduce fees that are hiding in their retirement accounts, I’ve noticed that prevailing financial attitudes are transforming in a good way.

“Research sucks” vs. “Research…is…easy?”

If you wanted to research your investment strategy or hunt around for a better interest rate, you had to do it the old-fashioned way — digging through prospectuses, crunching numbers, and spending way too much time comparing performance and fees from different institutions. If you wanted to check out the fees in your investment accounts, you needed to grab a magnifying glass and find your funds’ expense ratios, plus see if any extra fees were tacked on, then add your financial advisor’s cut if you had one. Are you getting a headache just thinking about this?

Now technology has enabled people to do the research without putting in the elbow grease — whether it’s comparing interest rates for checking and savings accounts, finding the right way to manage your cash (as Max does), or scanning your retirement investments for fees to find lower-fee options (which is what FeeX does), doing the research is now often as simple as clicking a couple of buttons.

“I’m sure it’s fine to leave this account alone” vs. “There are things I can do to maximize my savings”

Like Newton’s law says, an object at rest tends to stay at rest, and that’s true for the way some folks have been managing their money in the past. Settling on one particular strategy and sticking to it forever won’t necessarily hurt you, but with all of the options we have today, it doesn’t make any sense to let the status quo rule your money.

Max is a perfect example of this—sure, cash can sit in your accounts for all time without doing anyone any harm, but if you had the opportunity to use a service that let your cash accounts earn more money for you, wouldn’t you do it, especially if you could increase FDIC insurance along the way?

Likewise with FeeX: retirement accounts can easily sit for decades as-is, but with a free FeeX account, it becomes incredibly easy to see the changes you need to make to save more money. A few changes can be all it takes to save hundreds of thousands of dollars in fees over the long run.

“These fees are probably normal” vs. “If you don’t know what you’re paying, you’re paying too much”

If there’s one attitude that has become particularly apparent in the recent past, it’s this: you should always question what you’re earning versus how much you’re paying to earn it. FeeX was created with the mission of delivering clear information about how much it really costs for the privilege of investing. If you know more about your fees, you can make better decisions about how to invest. If you make better investment decisions, you’ll end up saving more money. If you end up saving more money? Well, that’s a good thing—and that’s one attitude about finances that’ll never change.

In Vino Veritas: The War on Terroir

Drink what you like, not what you're told.

Drink what you like, not what you’re told.

We invited Ben Hammer, a passionate wine drinker and foodie, to contribute this guest post on how to think about wine choices. Ben is a strategic communications advisor for technology, media and entertainment companies. His firm, Hammer Strategies, is based in Washington, D.C.


By Ben Hammer

In Vino Veritas: In wine there is truth. They say alcohol is a form of social lubrication. Behind closed doors or in a front of a bar, with a trusted confidante, a nice glass of our favorite elixir poured by a friendly bartender can help us ease into our personal time and space. The one we own, not the one most of us rent out for the day when we work for someone else.

To see, smell and taste is to believe. Reading a description of a wine is a bit like reading a greeting card. It’s either funny (and it should not be if received as intended), or it’s too flowery to understand. No, the only way to really know what a wine tastes like is to try it. Ideally, try it with another human being with whom you have a real live connection. One never truly experiences something unless with another human being.

For me, wine is about opening up a time capsule that encompasses soil, dirty fingernails, hard work, families, reputation, and the new discovery of a particular vintage, grape and combination of wine, food, palate and conversation.

Some wine snobs will pontificate what you should and should not drink when it comes to wine. I’m not one of those people. If you ask, I’ll tell you what I’ve heard about what to pair with duck (Pinot Noir, preferably from Willamette, OR, for my taste Patricia Green Ribbon Ridge; or if you like yours with a bit of spice, from France); or shellfish or fresh fish (something white, not too sweet, possibly a Riesling or Gruner Veltiner).

But I would rather arm you with the tools to make your own decisions.

Want to buy a serviceable $5 pinot noir from Trader Joe’s? Look for the blue bottle with the fish on the front [Blue Fin Pinot Noir]. Want a case of a white blend for a party?  Go with the Eichinger Gruner Veltiner for about $12-15 per bottle or the Edmund St. John Hearts of Gold blend for about $22 a bottle if for a special occasion.

Don’t let anyone tell you what you should or should not do. That said, here are a few things you might enjoy.

The 5: Tips for sure bets.

  1. Decoy red blend, Duckhorn Vineyards, Napa, CA ~$20 bottle
  2. Heart of Gold white blend, Edmunds St. John, El Dorado, CA ~$20 bottle
  3. Birgit Eichinger, Hasel Gruner Veltiner, Kamptal, Austria ~$13 bottle
  4. Schramsberg, blanc de blancs, Brut, CA (Champagne style) $~40 bottle
  5. Anything from Willamette, OR; Mallorca, Spain; or Stellenbosch, S. Africa.

Send questions or a picture of your favorite wine to benhammer@zoho.com. Best email of the month will receive a free bottle of wine.  Subject to local and federal laws.