Money Matters

In a post-recession environment, people are saving more for college, borrowing conservatively, and examining their investment strategies.

The Great Recession wildly altered the financial environment in which we spend, save and borrow. It sent consumers and businesses reeling, and as the economy stabilizes and we regroup, local financial experts are observing interesting trends.

College Savings

Parents are saving more for their children’s educations, for one thing. A report by the Washington D.C.-based College Savings Foundation (CSF) shows 65 percent of parents saved for their children’s college educations this year, up from 59 percent in 2009. And the percentage not saving for education at all fell to 35 percent from 41 percent in 2009.

That’s good news to Sarah Henrikson, vice president of Wells Fargo Fund Management, which manages Wisconsin’s 529 collegeSarah Henrickson savings program, EdVest. “I feel optimistic that savings in general is on the upswing,” she says. “People continue to recognize the importance of a college education and the states are really trying to make investing easy with 529 accounts.”

Parents can establish EdVest accounts for their children and make unlimited contributions each year, often through automatic payroll deductions. Grandparents and others can contribute, too, but parents still control the funds, so they can take them back if they need to.

“I have EdVest accounts for my kids, and at birthdays and other holidays my parents tend to write checks for the accounts,” says Henrikson. “Wisconsin offers a state income tax deduction on contributions up to $3,000 per student per year, with some restrictions.”

The accounts differ from federal Coverdell educational savings accounts in several ways. People at any income level can use 529 accounts, and the accounts are the parents’ assets, so don’t count as students’ income when they’re applying for financial aid. Adults can also open accounts for their own college educations.

EdVest offers 15 investment options, which invest primarily in stock and bond funds. “The most recent invest in federally insured bank and credit union CDs,” Henrikson says. “People are interested in more conservative options today, especially as their kids get closer to college age.”

Account earnings grow tax-free, and when students are ready for college, parents can withdraw the funds tax-free—that’s Wisconsin state and federal income taxes—if they’re used for qualified educational expenses. “The funds can be used at accredited schools across the U.S. and even some abroad,” Henrikson notes.

She’d like to see even more families use EdVest accounts. “The CSF report shows only one out of four families use 529 accounts, even though they say saving for college is important,” she relates. “It doesn’t need to be a big investment; it can be as little as $15 a month. And it’s important to start early so you have time to accumulate funds and potentially benefit from the power of compound earnings.”

Jason EngledowBorrowing

When it comes to borrowing, both consumers and businesses are more conservative since the recession. A nationwide survey U.S. Bank conducted of small business owners shows they’re resilient and are confident in their own abilities to weather the storm, but are less certain about the economy.

“Because of that uncertainty, we’re seeing many companies pay down their debt and not use their credit lines as much as in the past,” says Jason Engledow, vice president of business banking at U.S. Bank. “If they do borrow, they’re investing in equipment to improve company productivity. They want to increase their cash flow and enhance their asset position to be poised for growth as the economy recovers.”

He does see opportunities for some businesses in the current economic environment. “Companies that were conservative through the recession can restructure their debt—money is so cheap right now,” he says. “They can look for acquisition or expansion opportunities so they’re poised to grow.”

He’s seen a recent uptick in companies purchasing buildings. “There are good deals to be made, and we’re one of the few banks out there lending for commercial real estate properties,” he says.

U.S. Bank is very well capitalized, since it didn’t join the easy-lending frenzy that led up to the recession. “We’ve always been known as prudent and it’s benefiting our clients today,” says Engledow. “Our underwriting has remained very consistent in making loans to companies with sound business models.”

As a result, Fortune, Global Finance and Euromoney magazines, along with J.D. Power & Associates, have lauded U.S. Bank as one of the nation’s best and safest. “We’re not a transactional bank; we’re interested in building long-term relationships with clients,” Engledow says. “We take a consultative approach, like a trusted advisor.”

The bank’s survey shows business owners are more interested today in educating themselves about financial matters and developing relationships with their bankers. “Our clients appreciate the fact that we listen and have empathy,” says Engledow. “We don’t just look at their paperwork and say no; we want to find ways to help them succeed and reach their goals. If we can’t help them through one program, often we can through another.”

That will be important as the economy recovers. “There’s a lot of pent-up potential for business expansion,” Engledow says. “Business owners are waiting to see how regulatory issues that might affect their companies shake out in the coming months.”


Marilyn Holt-SmithOn the investment front, some people are concerned that they haven’t earned adequate returns over the last decade with passive investing strategies. With this approach, investors buy into funds that mirror, say, the S&P 500 index. “But if you buy an index fund, you’re not doing anything different from the market in general, so there’s no way to outperform it,” notes Marilyn Holt-Smith, CEO and senior portfolio manager of Holt-Smith Advisors.

“And lately investors have gone away from equities toward fixed-income strategies, but in today’s low-interest-rate environment, it’s hard to earn good returns,” she adds. She thinks it’s an overused strategy, and instead, her boutique investment firm creates and implements customized investment plans for individuals, foundations, endowments and institutions. Along with some outside products like exchange-traded funds, Holt-Smith and her team of licensed investment advisors largely use proprietary products.

“We have our own strategies for particular stocks or bonds we purchase for clients,” Holt-Smith says. “Our concentrated funds include a limited number of securities that we think will best outperform the market.”

She’s waiting to see what the federal financial reform act will mean to individual investors. “There’s been a lot of confusion, because much of the punch behind the act will be in regulations that have yet to be created,” she says.

For one thing, the SEC is doing a study on the standard to which different investment professionals should be held. “Right now investment advisors are held to a fiduciary standard: They are required to act in their clients’ best interests,” explains Holt-Smith. “Broker/dealers and some financial planners are held to a ‘suitability’ standard of care. This means they have to invest in a way that fits a client’s investment criteria, but they don’t have to put the client’s best interests first.”

Holt-Smith is also concerned about the effect prominent Ponzi schemes—think Bernie Madoff—and the poor management practices of a few bad actors have had on public perceptions of her industry. “It means we work harder every day to earn our clients’ trust,” she says.

“Clients are asking more questions, which is fine with me,” she continues. “We run a very transparent operation and, as always, are happy to tell you anything you want to know about us, our firm and what’s happening in your portfolio.”

She’s seeing more people interested in working with local investment managers. “You can sit across the table from them and look them in the eye,” she says. “If you send your money off to a conglomerate in New York, you often don’t know who’s making decisions. There’s a lot of financial expertise right here in Madison.”

Socially Responsible Investing

Richard SalsSome investors believe ethics are as important as earnings, and even through the recession used socially responsible investing (SRI), also called sustainable or ethical investing. SRI recognizes that corporate responsibility and societal concerns can be valued parts of investment decision making. With this approach, investors look at companies’ environmental, social and governance practices when designing their portfolios.

SRI encompasses an estimated $2.71 trillion in the U.S. investment market today, representing nearly 10 percent of all assets under management, notes Richard Sals, principal at ACS Johnson Investment Advisors (formally ACS Investment Advisors), which has been helping traditional and socially conscious investors satisfy their financial objectives for almost three decades. “At the heart of our process is a thorough dialogue with our clients to determine the importance of social investing as a portion of their total portfolio,” he says. “We accomplish this portfolio design primarily through the use of socially screened mutual funds.”

By definition, adopting social screens does reduce an investor’s investment choices and could reduce return. “But over the years, we’ve found dedicated SRI investors are less likely to lose sleep over performance differences than the inability to follow their ethical and social values,” says Sals. “You can make the argument that the absence of stocks like tobacco, alcohol and gambling—so-called non-cyclical stocks—could hurt performance during bear markets, when consumers focus on the basics and what they enjoy,” he continues. “Over full market cycles, however, cyclical stocks such as consumer discretionary companies that tend to be more socially responsible—the flat-screen TV or iPhone you couldn’t do without—may outperform during bull markets.”

Sals cites data that suggest SRI investors aren’t giving up performance for personal values. The Domini 400 Social Index has averaged 8.4 percent annually from 1990 to 2008, whereas the S&P 500 Index has averaged 7.8 percent for the same period. A similar set of data hold true for bonds: PIMCO Total Return III, a socially screened bond portfolio, has a 15-year annualized return of 7.5 percent per year compared to a 6.4 percent per-year return for the BarCap U.S. Aggregate Bond Index.

So do you have to give up ethics for earnings? “The answer seems to be no,” says Sals. “Johnson Bank and ACS Johnson Investment Advisors are available to discuss your financial needs and craft a socially screened portfolio that will meet your long term goals while maintaining important social values—and perhaps even saving the planet.”

Judy Dahl is a contributing writer to Madison Magazine.

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