November 20, 2023 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage. Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for November 20, 2023

Andrew Opdyke – 2023 End-of-Year Economic Update

In this Episode of the Secure Your Retirement Podcast, Radon and Murs speak with Andrew Opdyke about a 2023 end-year economic update and the expected shift in the economy in 2024. Andrew is a Certified Financial Advisor and Economist at First Trust Advisor. Listen in to learn about the impact of the concentration of investments in the top ten companies and when the market broadening will happen. You will also learn about things to consider when expanding your investment portfolio in 2024…  

2023 End-of-Year Economic Update

Andrew Opdyke is back with us to get his insight on the broad economy. He’s been on our show multiple times, and he’s returned with his 2023 end-of-year economic update that everyone should listen to at least once. Whether you’re trying to secure your retirement or in the middle of retirement planning, it’s always important to keep a pulse on the market.

July 31, 2023 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for July 31, 2023

This Week’s Podcast – Andrew Opdyke – 2023 Mid-Year Economic Update for Retirement

In this Episode of the Secure Your Retirement Podcast, Radon and Murs speak with Andrew Opdyke about a 2023 mid-year economic update and the future. Andrew is a Certified Financial Advisor and Economist at First Trust Advisor.

Listen in to learn the expected and unexpected turn of events in the economy today and why inflation might not allow for rate cuts this year.

 

This Week’s Blog – Andrew Opdyke – 2023 Mid-Year Economic Update for Retirement

Andrew Opdyke, an economist for First Trust, was back on our most recent podcast. For those who don’t know, Andrew comes on our show about once a quarter to update us and our community on recent economic events.

This time, he provides us with a great mid-year economic update that will help you when retirement planning.

Andrew Opdyke – 2023 Mid-Year Economic Update

Andrew Opdyke, an economist for First Trust, was back on our most recent podcast. For those who don’t know, Andrew comes on our show about once a quarter to update us and our community on recent economic events.

This time, he provides us with a great mid-year economic update that will help you when retirement planning.

We’re going to:

  1. Summarize the first two quarters of the year
  2. Summarize what Andrew expects over the final two quarters of the year

If you want to listen to the podcast, you can find it right on our site here. Otherwise, we’ll cover the most important parts for you below.

What Happened in the Last Quarter and What are Andrew’s Thoughts?

We’re a little more than halfway through the year, and the first half of the year was more comfortable than the last quarter of 2022. Even the markets have been far less volatile, which is a good thing for investors. 

At the end of the first quarter of the year, we saw the Silicon Valley Bank collapse and a few domino pieces fell along the way.

Today, the Fed agrees that they have more work to do. We’re at the halfway mark of the year, and we’re seeing:

  • Inflation trend lower at 3% year-over-year, although Andrew believes this to be a little misleading
  • Energy prices are slowing down a bit
  • Taking out food and energy, we’re seeing inflation fall from 5.9% to 5%, which is hitting consumers quite a bit

Inflation has remained stubbornly sticky, and the Fed is expected to raise rates at the end of July and maybe another before the end of 2023. The question remains:

  • Will we see a recession?
  • Will employers begin laying people off?

We’re seeing manufacturing come down a bit, but construction activity is at record-high levels. Employment, at the time of this article, is still progressing and remains strong. Consumers are still spending.

Has everything transpired as expected?

For the most part, the economy is doing well and even the markets are stabilizing. There was sort of a concentrated performance in the tech industry at the beginning of the year.

Andrew believes that the market may get a little bumpier going into the end of the year.

Rates Hikes or Cuts: What Will We See?

Rate hikes and cuts are always top news stories and something we hear a lot about from our clients. Andrew believes that at the end of July, the Fed is likely to raise rates again. He expects an additional rate hike before the end of the year.

At the mid-point of August, he expects that the CPI will dictate the future choices from the Fed.

CPI was from activity almost a year ago. We’ll see some bumps in the newest CPI due to the Ukraine/Russian war.

The Fed has changed pace often this year because the ability to guide and navigate this ever-changing environment is evolving. What the Fed doesn’t want to do is repeat the mistakes made in the 70s and stop inflationary measures too fast.

Andrew anticipates the rates will have one or two hikes before the end of 2023 and sometime in 2024, rate hikes may follow. As inflation begins to trickle in the right direction, the Fed will begin to lower rates.

Most countries are seeing similar trends as the United States, but we are seeing:

  • Germany has rising inflation
  • United Kingdom’s inflation remains flat

Energy price rises in the US can put some pressure on the UK economy. At this time, we’re not seeing a Central Bank that we can say, “Hey, they’re doing everything right.” Every Central Bank is working through these ups and downs.

Recession Risk at the Mid-point of 2023

Recession is something we’ve been talking about for a while now, and with everyone spending like normal, it’s almost a self-fulfilling prophecy at this point. Andrew estimates that there is an 80% chance that we’ll see a recession.

When will this recession happen?

No one knows. We may see a recession in 2023 or 2024. We’re seeing facilities being built today without orders in the pipeline in the coming year. What does this mean? Businesses are sort of holding back a recession, but something needs to happen before orders run out for the momentum to remain.

Reading through banking reports, it looks like consumer savings may fall back to pre-COVID levels by the end of 2023. Less money in the bank may lead to consumers spending less, which also raises the risk of a recession.

If we hit a point where consumer spending falls and rates are high, it will likely push us into a recession.

Can we avoid a recession? Possibly. However, it’s a very delicate time. We’re even seeing the markets perform very well this year.

2023 Mid-year Economic Update: Stock Markets

No one would have guessed that going into 2023, the market would be where it is today. Technology and AI helped lift the market at the start of the year, but Andrew is seeing the market broaden a bit.

We’re seeing 3% – 4% of market growth happening from outside of the tech sector.

Most people started the year with expectations that the market would go down, but it hasn’t really happened. Instead, we’re seeing people paying not based on earnings but higher multiples from these companies. We’re seeing the top 10 tech companies trading at 30 times their earnings. The top 11 – 50 companies are trading at 16 – 18 times their earnings.

A sustainable bull market will require some of these non-tech companies to have strong earnings and returns.

Based on GDP and employee output, we’re not seeing the rise in productivity that tech companies expected with AI. Many of these technologies take time to evolve and be adopted by users, which could cause some of these tech stocks to come back down.

Foreign Economies

China reports not seeing the bounce back that they expected of 5% growth, which is low for the country. Apple and Tesla moving to India is changing the economic landscape. With the country likely to have the world’s largest population soon, it’s very likely that India will begin to grow rapidly.

Top-down leadership works well in short bursts, but communist countries have been, traditionally, difficult to maintain long-term.

For example, the tech sector has been the backbone of the US for the past 20 years, but China has had a lot of difficulties in this arena. China is known to replicate ideas and innovations, which means they continued to fall behind on tech that others had already released.

Finally, when companies in China started to innovate, the communist government started to put the clamps on them because it didn’t look good for the government when these companies were acting independently.

We saw this with tech investments and Alibaba. Investors have been scared away from China due to this clamping down.

We’re also unsure of where China’s economy stands because the country has been known to provide inaccurate information. Andrew expects that over the next 10 – 30 years, China will struggle to grow.

Geopolitically, the world may look very different in the next 5 – 10 years.

Forward-looking Questions: Concerns for the Second Half of 2023

As we move into the end of the year, there are some major concerns, especially with a lot of the big company’s price-to-earnings (P/E) ratios. If confidence wanes, we can see some pullback while P/E goes back to normal levels.

Commercial and office real estate loans are coming up.

We are seeing a lot of foreclosure talks that can hit local and regional banks. Large banks are less susceptible to these potential risks of foreclosure.

Russia and Ukraine will remain a major question mark. China’s threat to Taiwan will remain critical to the market, especially if things intensify, such as an increase in training in the area.

Andrew believes the biggest headwinds are:

  • P/E for many companies is too high
  • Money is coming out of the system

In 2020/2021, we saw the government inject a lot of money into the system. PPP loans, COVID checks, treasuries trying to hold money – all of this can have an impact on the economy and cause growth to slow heading into December.

Forward-looking Questions: Positives for the Second Half of 2023

Manufacturing investment will help the country, especially bringing back semiconductor manufacturing. Investments like this will roll out for years to come and will boost the economy.

We’re seeing a lot of things today that can help us see a boom in the future. 

Andrew is optimistic that we’re a lot closer today to a recovery than just a few months ago. It’s very unlikely that we’ll need massive rate hikes of 500 – 550 basis points again. We just need to get over the last hurdle, and then we can see growth.

Improvements in education, clean water, manufacturing and so on will drive us forward 18 months from now.

Once we get through the tough stuff, we’ll have a very bright future.

S&P 500 Forecast

Andrew thinks that we’re likely to see a pullback in the market because the markets got ahead of themselves. Evaluations and P/E are too high, but this can change with some major unforeseen growth factors, such as AI reaching its expected potential much faster than expected.

People will need to reevaluate to see if they’re overpaying for something that is underperforming with the tech stocks that are trading well after what they should be, in many cases.

Do you want to talk to us about any of these key points in the mid-year economic update?

Schedule a 15-minute consultation with us today.

July 17, 2023 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for July 17, 2023

This Week’s Podcast – Annuities or CDs – What You Should Consider

In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the similarities and differences between annuities and CDs and the best one for retirement planning. In as much as CDs and fixed index annuities are similar, CDs are best suited for short-term investments, while annuities are best suited for long-term investments.

 

This Week’s Blog – Annuities or CDs – What You Should Consider

Annuities or CDs?” is a question many folks are asking because interest rates on CDs are the best they’ve been in a long time. In this article, we’ll cover both annuities and CDs to help you better understand which option is right for your current retirement planning strategy.

Annuities or CDs – What You Should Consider

Annuities or CDs?” is a question many folks are asking because interest rates on CDs are the best they’ve been in a long time. In this article, we’ll cover both annuities and CDs to help you better understand which option is right for your current retirement planning strategy.

Wait. CDs? They’re No Good, Right?

We haven’t talked about CDs for a long time. Interest rates weren’t that attractive in past years. Most people were lucky to receive 1% to 2% returns. Clients who want to reduce market risk can, at the time of posting this article, go out and get a 1-year CD at 5.5%, or a 5-year CD at 4.5%.

With returns like this, we have a lot of people questioning why they would put their money into an annuity – especially a fixed annuity.

First, we need to consider putting the funds into the right place for your retirement focused plan. You have a lot of options when investing, including the following three main categories:

1. Growth

You can put your money into growth assets, such as equities, because they have the highest return potential. These assets would include things like ETFs, stocks, and mutual funds.

These funds need to remain in the market for some time and have the risk of volatility. Markets go up and down all the time, and your funds will follow this trend, too. You do have the potential to lose money with equities, but we do have controls in place to limit these potential losses.

2. Safety

If you want to have a good rate of return without the risk of losing money on it, you’re now in the following territory:

  • CDs
  • Treasury Bonds
  • Fixed Annuities

These investment vehicles protect you from market losses, so you don’t need to worry about that, but you may earn less with a fixed option.

3. Cash

Easy money access. If you need liquidity, this is the avenue that you’ll want to choose because it gives you access to the money without penalties when you need it. However, you will not receive a high rate of return.

 Keeping this in mind, we’re going to expand on the second category, “safety”, because that’s where the discussion of CDs vs. annuities really exists.

Interest Rate Risks of CDs and Annuities

CDs and annuities are the “hot topic” right now. Interest rates have gone up due to inflationary measures and banks are now able to offer better rates on CDs than they have in a long time. The Fed’s goal is to tame inflation, and when it does go down, interest rates will also come down.

If you buy a CD today at 5% and allow it to reach maturity, you can choose to:

  • Take the money and put it back in a CD
  • Take the money out and put it into other investments

CD renewals will allow you to buy the CD again at current market rates. It’s very likely that rates will come down and you may have a CD rate of 3.5% or 4% at renewal – or lower. Two years from now, CDs may be 2% or 1.5%.

These lower interest rates are your “reinvestment risk”.

We like the idea of putting a portion of our client’s money into the six-month or one-year CDs, if they know they’ll use these funds in the next year and will need to access them. In the meantime, they will receive a nice return on their investment.

Fixed Indexed Annuities and Their Potential 

Fixed Indexed Annuities (FIAs) are driven by interest rates, so just like CDs, the interest rates have gone up in the last year. The key difference between a CD and an FIA is the length of the contract you receive. For an annuity, the term is longer, such as 10 years.

You may receive a 4.5% – 5.5% interest rate on CDs for 1 year or more. Over the past 10 years, FIAs with no riders or fees have had returns of 4% – 6%. Compared to CDs, this range for annuities was much higher.

In today’s market, because of higher interest rates you can receive an FIA that averages 5% to 10% over a 10-year period. However, you may have some years with 0% returns.

How does that work?

Annuities are linked to an index. For example, S&P 500:

  • S&P 500 rises 10%, so you earn 10%
  • Next year, the S&P 500 drops over 10%. Since you are protected from market losses in an FIA, you do not lose any money in that year.

Fortunately, FIAs often have many index options that allow you to diversify your potential and gain more opportunity.

We believe FIAs are really a bond alternative, as they are both conservative and protect against risk. Bonds in 2020 – 2022 hurt portfolios more than they helped.

Clients often look to bonds to make 3% – 5%, but FIAs offer:

  • Greater return opportunities
  • Principal Protection (protection from market losses)

Of course, if you have money that you want to park for a year and then use the money, put it into a CD and make your 5% return. However, for long-term investments and the potential to make more money, it often makes better sense to go with an annuity.

Annuities are longer-term, but the reward is more consistent. CDs are shorter-term and, while they have their place today, will see rates go back down as inflation falls and interest rates follow.

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