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
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…
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.
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.
October-November 2023 Economic Update
October was an interesting month due to the conflict between Israel and Palestine, and inflation remaining stubbornly high. Economic data came in stronger than anticipated, but there were still some concerns.
November 1st, the Fed’s meeting was a sigh of relief for many when they announced that maybe they’re “done” with trying to tame inflation. Perhaps rate hikes may remain on pause for now.
Rate easing may be ahead in 2024, which is what a lot of economists are hoping will occur.
However, as anyone who follows the market knows, just two weeks prior to these reports, there were just too many concerns that inflation may last a little longer. We just don’t have all the data yet to say if 2024 will see interest rates fall, stay the same, or even go a tad bit higher. Right now, as of mid-November, the New Year looks promising.
We’ll need to watch the data to better understand the ebbs and flows of the market right now.
Concerns of Investors Outside of the Magnificent 7 Stocks in the Market
When looking at the S&P 500, it has performed well this year when you include the stocks that are the “magnificent 7.” What are these stocks? They’re high performers that carry the market and include big names:
Alphabet
Amazon
Apple
Meta
Microsoft
Nvidia
Tesla
If you remove these seven stocks from the market, you’ll notice that the market is down in an equal weight market. The percentage of companies beating the index is at a 20- or 30-year low. Equal weight provides a better picture of what’s transpiring in the market, which would show most stocks are either flat or slightly down.
How much are people paying for the top 10 companies in the index? Many investors are paying a multiple of 25 to 30 for these ten stocks and a multiple of 17 for others.
What does this all mean? The top stocks need to continue performing well for the overall market to recover. Andrew would like to see a broader market rise, in which dozens of stocks are lifting the market, and believes that it will take some time to materialize.
Will the Economy Land or Take Off?
Soft landing. Hard landing. A lot of terms are thrown around for the economy and how it will end up after the pandemic and the high level of inflation that we’ve seen. Some economists are of the mindset that the economy won’t land but will take off.
However, Andrew believes that we’re likely to see a soft landing.
What we saw in the third quarter is that companies have excess inventory, which is due to a slowdown in production after COVID. Companies purchased a lot of inventory due to supply chain issues and are likely to:
Slow spending over the next 3 – 9 months
Avoid some growth initiatives due to high-interest rates
Will we hit a recession? Who knows? A recession has been six months away for 18 months now. Companies are buying less, building is slowing and if we do go into a recession, there’s a good chance that it will be very shallow.
We need to get back to sustainable interest rates without outside influence and stimulus.
Entering into 2024, we should start to learn more about the strength of the markets and economy without any outside influence building it up.
Building an Investment Portfolio to be Recession-proof
If we enter a recession, will interest rates still remain high? Look at companies that have sustainable cash flow, because even Apple must pay the high interest rates of today when they take out a loan and they add tens of billions in free cash flow quarterly.
Investors will want to dive into balance sheets and see which companies can fund their own projects without loans.
The United States has been sending money to Ukraine and is now funneling money to Israel. Ongoing events like these play into how the economy will look in the future.
The main risk of this new conflict is in the energy markets.
If Iran or others enter the conflict, it can lead to higher energy markets and a further rise in inflation. Economic repercussions of the Israel and Hamas war are likely to be a lot less than even Ukraine and Russia.
Trade conflicts and fracturing are occurring, and the US is doing a good job by determining who our strong trade partners are and reallocating our investments to these countries. We’re importing less from China and are trading more with:
Canada
Mexico
Japan
We have shuffled back and pulled away from China, pushing them from the first to the third trade partner that we have.
AI and the Hype Around It
Cryptocurrency was a major trend in past years, followed by blockchain. Now, we’re seeing a lot of people harp on the idea of AI. We’re at a point where we were with the Internet first coming about, where companies knew that the landscape of the way we work was changing.
What does AI mean for us?
The environment and world are changing. Some professions may become obsolete, and some new jobs may be created. If you look at the top 10 companies in 1999 and today, only two remain: Microsoft and Exxon.
AI may be won by the biggest companies, but if history repeats itself, we’ll see some companies born out of AI that may change the world. We may see the next Facebook or Meta created, and it may be a company everyone is overlooking.
What are you Most Worried About?
Geopolitical issues that are popping up, and more are likely to be added, are a major risk to the economy right now. China is likely to see a more difficult path in the next 10 – 20 years. We’re also entering an election year, and the negative side of the election can cause market fluctuations.
Escalation of Russia and Poland, Iran entering the Israel and Hamas war or China invading Taiwan can all effect the economy.
What are You Most Excited About?
AI excites Andrew, and he believes that while the technology is likely to change the world, in the next 24 – 36 months, we may see some major changes thanks to AI. Humanity is “fighting the fight,” with more people being literate and doing some amazing things.
We’re seeing how dementia has been in decline in the last decade, and as a whole, we have more people than ever trying to solve problems that have plagued the world around us.
Andrew is unbelievably excited to see how human potential is being unleashed.
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?” 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:
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.
Do you want to read more about how to secure your retirement?Click here to view our latest books covering this topic, or schedule a call with us.
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 April 24, 2023
This Week’s Podcast -2023 1st Quarter Economic Update
Learn why you shouldn’t worry about the US debt ceiling and its impact from a market standpoint. You will also learn why inflation might last longer and cause a recession if the federal reserve doesn’t prioritize the inflation fight.
This Week’s Blog – 2023 1st Quarter Economic Update
Andrew Opdyke was our special guest on this past week’s podcast. If you’ve read through our blog or listened to our podcast before, you know that Andrew is who we rely on to gain insight into the economy. In December 2022, we asked him how is the economy doing right now?
Andrew Opdyke was our special guest on this past week’s podcast. If you’ve read through our blog or listened to our podcast before, you know that Andrew is who we rely on to gain insight into the economy. In December 2022, we asked him how is the economy doing right now?
And now, at the end of Q1 2023, we’re asking him the same question. A lot has changed in the last quarter that everyone in the middle of retirement planning or in retirement must keep up to date on. P.S. You can also listen to this episode of the podcast here.
Major Points of Interest in Q1 2023
The first quarter of the year started off with a lot of unknowns. Fear of a recession and inflation were hot topics, and now, we have some clarity going into Q2. The year started with high inflation and questions about the Fed raising rates.
How much will the Fed raise interest rates?
How long will rates stay elevated?
Finally, we’re seeing some break in inflation. Jobs also came in strong, although the numbers are starting to slow, and we still have a little time before GDP figures are released. We are noticing a divergence in the goods and services of the market.
If you remember, during COVID, the focus seemed to turn to goods.
The goods side is moderated at the moment and may even be in recession territory. However, the services side of the economy is picking up the slack and performing very well. The question on the Fed’s mind is why hasn’t inflation come down yet? And when it does, will economic growth be prioritized or inflation?
No one knows for sure.
On the market side, things are looking up. Many of the companies that struggled at the end of 2022 are leading the way in 2023. The question is whether the market can sustain itself.
Bank Situation in 2023
A lot of people reading this remember the financial crisis, but the new banking issues center around the US Treasury. The Treasury has been known to be one of the safest investments that you can make, but banks got hit from holding assets in an environment with rising interest rates.
Even banks like Silicon Valley Bank, which no one really heard of because the average person didn’t bank with them, have been hit. That’s because Silicon Valley Bank offered loans to many companies that thrived during COVID and sort of fizzled out or was less attractive after COVID.
Small and regional banks started to tighten up lending activity, leaving many small- and medium-sized businesses with less funding after the debacle with Silicon Valley Bank. Tightening in these banks led to a sort of “additional Fed hike” for non-public or large companies.
Larger entities work with major lenders, which are less impacted by the banking situation.
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Invest
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Andrew doesn’t believe that the banking side of things will be long-lasting. We will see the effects of these issues over the next 3 – 6 months as the banks pull back. The result? That’s what we’re unsure about. Growth may slow due to these banking issues.
US Dollar and Losing Its Place as the Reserve Currency
For 200 years, the US dollar has been the world’s most important currency. International transactions needed the US dollar when trading. The world’s most stable currency becomes the reserve currency status.
The US benefits from being the reserve currency in a few ways:
Keeps interest rates lower
Higher demand for debt
Easier ability to trade on international markets
Every few years, we hear that the USD will fall out of being the reserve currency. This time around, China and Brazil made a deal, and China asked for the payment to be made in the Renminbi. Another deal in the Middle East requested the same, and this has led to speculation that the Renminbi will overtake the US dollar as the reserve currency.
If this happens, it will lead to:
Higher interest rates
Consumer impacts
Every few years, we hear this same story of the USD losing its reserve status. Even with these changes, over 60% of international reserve balances are held in USD. Between 60% to 80% of international transactions are in the US dollar.
China accounts for around 2% of transactions, primarily because businesses do not trust communism for their reserve currency.
Debt Ceiling Concerns
The US has printed a lot of money in recent years, leading to major concerns about being able to service the debt. While the US has a lot of debt, the numbers do not show the full picture without looking at both sides of the balance sheet.
On both the corporate and consumer sides, we’re at or near all-time debt levels.
We’re also at all-time asset levels, too. However, how much GDP percentage does it take to service the debt? Roughly around 1.9% of the GDP is necessary to pay these debts. In the 80s and 90s, we paid about 3% of GDP.
The balance sheet is in a better position now than in the past.
However, we should raise our debt ceiling and pay our debtors. A US default is unlikely this year, and these talks will swirl again in a year or two because it’s very interesting and sells a lot of advertising to media viewership.
What is Andrew Worried About in 2023?
A major concern is the Fed and if they will remain hesitant in the inflation fight. If the Fed remains slow to ease inflation, Andrew expects a recession in Q3 or Q4 of 2023. He does point out that not all recessions are created equal, and he thinks it will be like the 1990 – 1991 recession.
What is Andrew Optimistic About in 2023?
Progress is taking place in the market. He expects earnings to remain around the highest levels in history. Production and output growth are expected to pick up once the Fed gets inflation under control.
The service side of things is expected to keep the economy running.
In the second half of 2023, the economy is very likely to slow, but it will strengthen the economy going forward.
Andrew does believe that market volatility will occur towards the end of the year and in 2024, rate cuts will begin. The net effect is a short recession, and the market will be roughly flat by the end of 2023.
If Andrew is right, the US economy will slow down and then pick up steam in 2024. Overall, he is confident that next year will look a lot better in terms of production and growth.