Imagine owning an asset that has increased by 25% during the recent coronavirus pandemic. Now let me tell you a little secret: you probably already own it! I’m talking about Social Security benefits.

At Hill Investment Group, we help clients with all kinds of important decisions to optimize their portfolios. One of these decisions is when to collect Social Security benefits. The question is much more complicated than you might think. Some clients have seen six-figure differences in options after we run our analysis. Timing when to collect on Social Security is even more important today with interest rates near zero. If you are curious about how we do this analysis and are interested in what the answer might be for you, schedule a call here.

Recently, New York Times financial columnist, Jeff Sommer, wrote a piece arguing we should think of our social security as an annuity. Sommer argues it’s an annuity we all own that has skyrocketed in value – to the tune of $1 million for some. As many of you know, we generally advise AGAINST owning annuities of any type and better explain why this is different.

The key points:

• Social Security can be compared to annuities because similar to an annuity, Social Security provides a monthly guaranteed income for a specified period of time. 
• With low-interest rates, the income-producing power of other investments has dropped while the value of Social Security has held strong.
• Because of this, coupled with Social Security payments increasing with inflation, the effective value of the Social Security income stream has soared.
• As an added benefit over annuities, the US Government guarantees the payments, so it’s virtually risk-free, unlike a stock portfolio. 
• If you tried to purchase an annuity on the market with similar features, it would be an expensive annuity indeed. Example: for a high-income earner who delays claiming Social Security benefits until age 70, Sommer suggests an annuity providing comparable benefits might cost about $1 million today, an increase in the cost of about 25% from prior years.

 Be sure to check out his article here.

Race and power are front and center in conversations happening (or not happening) around the world. There is so much we’d like to say, but for now we think it’s most helpful to highlight one of the voices who says it best. If you watch one thing today, we think it should be this 14 minute Ted Talk from Mellody Hobson, a finance boss who nails it.

Watch Hobson’s classic 14 minute Ted Talk by clicking the image below, and should you find yourself loving Mellody the way we do, keep exploring her wisdom here or here.

Since 1928, value stocks have outperformed growth stocks by 3+% per year on average. Legendary investor Warren Buffett is maybe the best-known example of a dedicated value investor, who throughout his career has captured an impressive outperformance of his own – Berkshire Hathaway has outperformed the S&P 500 from 1965 – 2019 by 10.3% per year.

So what is value investing? It is the bargain-shopping of the investment world. Introduced in the 1920s by Benjamin Graham and David Dodd, it’s an investment strategy based on finding stocks that appear to be trading for less than what they are actually worth (through analysis of the company’s balance sheet). In the 1990s, Nobel Laureate Eugene Fama and Kenneth French added fuel to the value fire by arguing that the value premium – the positive return investors get from investing in cheap stocks – largely explained equity outperformance in both the US and International markets. 

Recently, value has not been having its day in the sun. Over the past 10 years, growth stocks have outperformed value by 3.3% per year*. So what happened to value premium? 

Cliff Asness and his colleagues at AQR recently wrote a white paper titled Is (Systematic) Value Investing Dead?  Their argument? Long-term value premiums are alive and well. 

Said differently, even a sound investment strategy with a high expected return, like value investing, can underperform, even for extended periods. After all, without this inherent risk, we wouldn’t expect to see a positive return in the first place. That’s not to say the recent underperformance can’t continue, but if you are looking for the best odds of success, it would be hard to ignore the evidence over the long-term.

Our take: value investing is not dead. Far from it. Instead, true value investors earn their return in periods like these…by sitting still. Warren Buffett is quoted as saying “The stock market is designed to transfer money from the impatient to the patient”. Well said.

*comparing the S&P 500 (with more growth-oriented stocks) with the Russell 1000 Value Index