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Investment Commentary

Unlearning to Learn

By Brian Andrew | Johnson Financial Group • March 31, 2022

5 minute read time

My 15-year-old son has spent much of his spring break working on his tennis game. He is passionate about the sport and has been playing since he was four. At the beginning of the week, he was told he needed to change his serve motion. Something fundamental, something he has done thousands of times the same way, something he doesn’t have to think about because his muscles already know what to do.

To learn something new, he needs to unlearn something he knows well. That starts with understanding why it is needed: to help with accuracy, speed and to reduce the potential for injury. To make the change, the new approach has to be broken down into the smallest steps so he can learn each one before putting them together to create the new service motion. Create a foundation, and then build from there…slowly retraining his muscle memory.

We all experience change every day and react to it differently. My son is not thrilled!

Technology Change at Johnson Wealth

Our Wealth business is working to create a new technology platform from which we can serve our clients. This will involve moving from one custody firm to another. My colleagues and I will need to learn new systems and processes across a wide range of activities.

The new platform will also mean our clients will need to work with us to re-sign paperwork and have their assets moved. None of this will be easy. However, it is necessary.

The financial services industry has grown technologically, and we need custodial partners who will allow us to connect the tools we use to serve clients. Financial planning, reporting and investing tools, along with investment strategies have all changed. Clients want to personalize their portfolios, their reporting and the way they receive information about their financial goals and investments. Advisors want to spend more time with clients discussing goals and less time on administrative duties. In order to do this, we need a new platform.

Our Wealth business has grown tremendously. We serve more than 15,000 clients offering services and advice across banking, brokerage, retirement, investment, financial planning and trusts. To be effective, we need to bring these services together and partner with those who are investing in technology and the tools we can use to serve our clients best.


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Investors Experiencing Change

As investors, we are also going through a significant change. Markets have been sanguine regarding the pandemic. After the initial sell-off, the global wave of government and central bank intervention provided liquidity and gave investors confidence that the hole in economic growth would be filled. As a result, asset prices, including stocks and bonds rallied significantly. As did asset prices in other areas such as private equity, real estate, autos and art.

Now, markets must face the reality of a post-pandemic environment. One in which economic growth isn’t aided by central bank intervention. In fact, one where central bankers aren’t just letting the punch bowl run dry but are going to take it away. The post-pandemic hangover effect of lingering supply-chain issues. And, the new geopolitical effects of a war in Eastern Europe. While we acknowledge that the investment environment is ever-changing, this all represents significant change.

The interest rate environment represents one of the biggest changes. The Federal Reserve is trying to navigate a move away from its years-long 0% interest rate policy. As a result, Treasury yields have risen significantly. The two-year Treasury yield has risen from 0.25% to more than 2.3% in six months, reflecting the future for short-term interest rates.

When managing a bond portfolio, we must keep going back to our foundational principles of liquidity, interest rate risk and credit quality to manage change and take advantage of this new environment. Keep liquidity a bit higher, begin slowly taking more interest rate risk (because rates have moved higher already) and watch credit quality in the face of weaker economic growth.

We also know that stocks have been more volatile. To adjust to the change, we can think about the foundational principles affecting portfolio construction. The stock portfolio represents many different styles of investing, from the size of the companies we own to their future growth potential and the industries they represent. Diversifying across these areas makes sense. Recognizing that higher interest rates benefit some areas more than others we can lean into those more. Also, knowing that economic growth will be positive but not likely meet previous euphoric expectations suggests there’s benefit in owning quality growth companies over those that might do better when the economy is growing well above trend.

The “reopening trade,” i.e., owning companies benefitting from the pandemic, is likely over. Still, there are likely fundamental changes in how we think about entertainment, working from home and commuting that will have a lasting effect. If there is anything in our lives that suggests we can learn to adapt and change, it is the pandemic!

On Knowledge and Wisdom

In Adam Grant’s book Think Again, the author talks about the importance of our ability to rethink and unlearn. He notes that “If knowledge is power, knowing what we don’t know is wisdom.”

As investors, our environment changes rapidly, and we must make decisions using our foundational principles to find advantage. As business managers, we need to adapt to best serve our clients. As an athlete, undoing and relearning is part of the process of creating success. Our world changes all the time, so knowing how to unlearn and be open to change is critical.

This information is for educational and illustrative purposes only and should not be used or construed as financial advice, an offer to sell, a solicitation, an offer to buy or a recommendation for any security. Opinions expressed herein are as of the date of this report and do not necessarily represent the views of Johnson Financial Group and/or its affiliates. Johnson Financial Group and/or its affiliates may issue reports or have opinions that are inconsistent with this report. Johnson Financial Group and/or its affiliates do not warrant the accuracy or completeness of information contained herein. Such information is subject to change without notice and is not intended to influence your investment decisions. Johnson Financial Group and/or its affiliates do not provide legal or tax advice to clients. You should review your particular circumstances with your independent legal and tax advisors. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared. Past performance is no guarantee of future results. All performance data, while deemed obtained from reliable sources, are not guaranteed for accuracy. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment losses. Certain investments, like real estate, equity investments and fixed income securities, carry a certain degree of risk and may not be suitable for all investors. An investor could lose all or a substantial amount of his or her investment. Johnson Financial Group is the parent company of Johnson Bank and Johnson Wealth Inc. NOT FDIC INSURED * NO BANK GUARANTEE * MAY LOSE VALUE