Insights Blog
Chefs or financial advisors?
By Jim Rankowitz, CFP®, CSRIC™, Senior Vice President – Investments, Senior Financial Advisor
April 2024
There are a lot of similarities between chefs and financial advisors.
For anyone who cooks, you know that the right mix of ingredients makes the recipe successful. You can’t just throw a bunch of things together and “hope” you get a good outcome. There are good recipes (and bad ones), proper techniques and proportions, years of experience, well-selected ingredients and high-quality tools which all go into the ultimate goal of a quality dish.
I think about portfolios in terms of cooking. Ingredients and recipes to be specific.
Individual investments are the ingredients, and the allocation of investments is the recipe. You can have good ingredients with the wrong recipe. You don’t need chocolate for making a salad, and you don’t need a burger if you are making breakfast. Not to say chocolate and burgers aren’t great, they are, they just don’t match the recipe. With investing, you must understand your recipe before you start picking out your ingredients.
Bon Appetit.
Understanding ESG Integration
By Jim Rankowitz, CFP®, CSRIC™, Senior Vice President – Investments, Senior Financial Advisor
April 2024
In our opinion, ESG integration is the most commonly used ESG and impact investing technique. ESG is the assessment of material non-financial environmental impact, social capital and corporate governance considerations of companies. ESG integration is the incorporation of this ESG information into the investment decision process. Most ESG integration strategies use this data to minimize ESG-related risks that are perceived to have an adverse current or future financial impact on the company.
ESG integration involves analyzing ESG information, identifying material ESG factors, deciding which ESG factors apply to each region, sector and company, and applying the ESG analysis into the investment decision process. In practice, the analysis is usually a combination of outsourcing through third-party data providers and in-house proprietary ESG analysis. The decision on how to apply the ESG factors can vary from firm-to-firm based upon their expertise and is often viewed as a way to differentiate oneself from your peers. Finally, the application of the ESG analysis into the investment process is also a way which managers differentiate themselves. Some firms pre-screen an investment universe, and then manage the portfolio based upon this list. Other firms choose their investments and then change the weightings based upon the ESG analysis.
A few years ago, only a handful of firms actively used ESG integration, but we are now seeing more and more asset managers utilizing this technique as part of their approach.
‘Sustainable’ or ‘Social Impact’ investing focuses on companies that demonstrate adherence to environmental, social and corporate governance (ESG) principles, among other values. There is no assurance that social impact investing can be an effective strategy under all market conditions or that a strategy’s holdings will exhibit positive or favorable ESG characteristics. Different investment styles tend to shift in and out of favor. In addition, an investment’s social policy could cause it to forgo opportunities to gain exposure to certain industries, companies, sectors or regions of the economy which could cause it to underperform similar portfolios that do not have a social policy. Risks associated with investing in ESG-related strategies can also include a lack of consistency in approach and a lack of transparency in manager methodologies. In addition, some ESG investments may be dependent on government tax incentives and subsidies and on political support for certain environmental technologies and companies. The ESG sector also may have challenges such as a limited number of issuers and the lack of a robust secondary market. There are many factors to consider when choosing an investment portfolio and ESG data is only one component to potentially consider. Investors should not place undue reliance on ESG principles when selecting an investment.
Donating investments for a bigger impact
By Jim Rankowitz, CFP®, CSRIC™, Senior Vice President – Investments, Senior Financial AdvisorMarch, 2023
Donating investments can be an excellent strategy for philanthropic individuals who want to give to their preferred charities or non-profit organizations. By giving certain investments instead of cash, donors can not only support their favorite causes but also enjoy certain potential tax benefits. Here are some charitable giving strategies to consider:
Donate appreciated securities: If you hold securities that have increased in value, donating them to a charity can be a smart move. You may receive a tax deduction for the full market value of the investment and can potentially avoid having to pay capital gains taxes on the appreciation.
Choose the right charity: Before donating your investments, do your research to make sure the charity is legitimate and aligns with your values. There are varying tax deductibility benefits for different types of non-profits and foundations.
Consider a donor-advised fund: If you don't have a specific charity in mind, you can donate your appreciated securities to a donor-advised fund (DAF). A DAF is a charitable account that allows you to make donations to multiple charities over time.
Time your donation: Timing is everything when it comes to donating securities. Consider donating investments that have appreciated in value for more than a year, as this may make you eligible for a higher tax deduction.
Consult with a financial advisor: Finally, it can be a good idea to consult with a financial advisor in coordination with your tax professional before making a donation. They can help you understand the tax implications of donating and ensure that it aligns with your overall financial goals.
Wells Fargo Advisors is not a legal or tax advisor.
How much cash should you keep in the bank?
By Jim Rankowitz, CFP®, CSRIC™, Senior Financial Advisor, Senior Vice President – Investments
March, 2023
Short-term interest rates have been rising and with it, the ability to move cash off the sidelines and into conservative short-term vehicles. Short-term CDs, treasury bonds, T-Bills, and position money market funds are offering the highest yields in decades, but how much should you have in these vehicles? Is there a rule of thumb for an appropriate amount of cash versus investments? 
Emergency funds, or cash reserves in excess of your monthly living expenses, are a vital component to one’s financial picture. Cash provides security, flexibility and optionality. Traditional planning advice recommends a minimum of three-to-six months of living expenses as savings, and one-to-two months of living expenses in checking. If you were unable to work, you would potentially need to access this savings. The amount in savings should at least cover your expenses for the amount of time needed to replace your job.
The emergency fund amount should also vary if your income is variable, if you are the only income-earner in a multi-person household, if you have a niche job, if you have a high income job that is hard to replace, if you have medical conditions that may make you more prone to take time off of work, if you don’t have disability insurance coverage and based upon your risk tolerance.
The appropriate amount of cash in the bank is also the amount you need to sleep comfortably at night. This will vary for everyone and impossibly to quantify as a formula. This is usually based upon risk tolerance, and how one views the impact of an unexpected financial event.
In short, the amount of you need to keep in cash and cash alternatives should be enough to cover a period of unemployment and enough to allow you to sleep comfortably at night.
