18th Annual Vista Wealth Symposium

We recently held our 18^th annual Wealth Symposium, an offsite event in which members of our investment, financial planning, and legacy planning teams present research projects to our full advisory staff. This full-day Symposium allows us to explore topics and align our team on important issues which help us better serve our clients.

Topics on this year’s agenda included:

• Performance of Small Cap Value Stocks
• Vista’s Impact Portfolio for Sustainability
• Fixed Income Review
• Quantifying the Value of an Advice
• Complex Charitable Planning: Case Studies

These discussions do not always result in changes to portfolios. This year, our detailed review of fixed income (bonds) confirmed our current strategy continues to provide the most appealing combination of safety, diversification, and inflation-protection while minimizing cost.

While you can expect to hear more from us on each of these topics, we’d like to highlight takeaways from two of our discussions:

Performance of Small Cap Value Stocks

Over the past ten years, U.S small cap value stocks have trailed their large growth counterparts by nearly 5.5% per year. Performance over the past decade has been so poor, in fact, that 96% of all historical 10-year periods since 1926 have been better for small cap value stocks than has the most recent decade.

We don’t blame investors for seriously questioning their commitment to small cap value stocks. Should they give up entirely? Or could small cap value stocks possibly stage a comeback? Recent performance makes this hard to imagine.

While past is not prologue, it’s worth noting that in 81% of all historical 10-year periods, U.S. small value stocks have delivered higher returns than U.S. large growth stocks. In other words, far more often than not, investors have been rewarded for favoring these smaller, lower-priced stocks.

After other past and painful stretches of underperformance, small value stocks have historically staged remarkable comebacks. Consider:

• The decade ending April 1939, when large growth stocks outperformed small value by more than 2% per year. The subsequent ten years saw a dramatic reversal when small value outperformed by 15% per year.
• The decade ending April 1999, when small value lagged by nearly 6% per year. Over the next 10 years, small value outperformed large growth by 10% annually.

These historical examples illustrate how investors occasionally become so enamored of the market’s most popular stocks, they seem to forget a fundamental tenet of investing: price matters.

We will never know in advance when the performance race will turn, but we do know that low prices have generally paved the way for high future returns, and high prices have inevitably led to lower returns.

That is why, after “paying for the risk” of investing by suffering through disappointing performance, it is critical to stick around for the returns we expect to materialize.

Quantifying the Value of Advice

As investment advisors, there are many things we do for clients that aren’t always reflected in performance statements.

What was the value of converting an IRA to a Roth IRA? What benefit did donating appreciated stock provide over simply writing a check to charity? How much more is a portfolio worth because of strategic asset allocation? How about decisions to buy stocks and rebalance in 2020 (or 2009) and to not chase GameStop or Bitcoin—what’s the value of that advice?

The benefit of these decisions and recommendations—some strategic, many behavioral—are not not shown in quarterly portfolio reports.

The Vanguard Group sought to quantify the value (“alpha”) of such advice in their comprehensive research paper, Advisor’s Alpha®.  Michael DiJoseph, CFA, one of the paper’s principal authors, joined our Symposium to share the study’s methodology and conclusions.

In total, Vanguard estimates advisors can deliver up to, or even exceed, 3% in annual “alpha” through comprehensive financial planning, behavioral coaching, asset allocation guidance, withdrawal strategies, and tax minimization. This is the value clients receive, expressed as a percentage of their portfolio value, above and beyond what is shown in a portfolio report.

A few of the key value-adds (and % estimated benefit) of Advisor’s Alpha® are:

• Utilizing lower cost investments (0.3%)
• Disciplined rebalancing (0.14%)
• Behavioral coaching (up to 2%)
• Minimizing tax through asset location (0.6%)
• Withdrawing from correct accounts (up to 1.2%)

If you’d like to learn more about Vanguard’s Advisor’s Alpha® framework or the other strategies we employ as we seek to protect and grow our clients’ wealth, please reach out to your Lead Advisor.

We hope our efforts to adapt and grow as the investment and financial planning landscape evolves provides you confidence in Vista’s ability to protect and grow your life’s savings. Our annual Wealth Symposium is an important part of that effort.