A Couple of Updates

Good morning and happy Tuesday. Before getting things started I’d like to take a moment to announce that today marks 30 years of my wife and I being together. While we will be married 26 years this August, we like to celebrate both anniversaries and the first one, today, takes us back to our senior year of high school. Yep, we’re high school sweethearts and I wouldn’t have traded a single day since. It’s good being lucky.

Anyway, on to business…

There’s a lot on my mind this morning, as is likely true for you, so here are two points of interest. One relates to an update of the Social Security rules and the other deals with information security.

The Social Security Fairness Act of 2023 –

News about this Act has been trickling in over recent weeks since the legislation was only signed into law last month and there’s been a lot going on.

Retroactive to January 2024, the Act repealed the Windfall Elimination Provision and Government Pension Offset that was applied to the Social Security benefits of workers who paid into the system during some of their working years but not during other years because they were participating in a public pension program. This applies to many Federal, state and local government employees, with public school teachers and cops being some of the most common.

Since the late 70’s the WEP and GPO provisions were intended to stave off windfalls being received by retirees (and often their surviving spouses) by getting their full Social Security benefit and their full pension from other employment. These incredibly confusing provisions created retirement planning problems for the worker and the financial planners trying to help them. The fairness of the provisions was also debated for years. Frankly, I can’t recall one time when working with clients that a true windfall seemed to be eliminated by the WEP and GPO.

Regardless, Congress has eliminated the provisions. The change applies to current SSI recipients and those who maybe didn’t bother applying because the WEP and GPO would have taken most or all of their benefit. As always, the details are complicated and the SSA will be the final arbiter of your benefits, so be proactive if this change applies to you.

The SSA’s website says they’re working on implementing these changes and the timeline is unclear. I’d assume there will eventually be a lump sum payment for impacted benefit recipients sometime this year plus increases to monthly benefit payments. Some filers will receive small increases while others will see a substantial increase in their benefits.

Here are a few points taken directly from the link below.

Will every teacher, firefighter, police officer, or public worker receive a benefit increase because of the new law?

Not necessarily. We know that some press articles have mentioned teachers, firefighters, police officers, and other public employees when discussing the new law. However, only people who receive a pension based on work not covered by Social Security may see benefit increases. Most state and local public employees – about 72 percent – work in Social Security-covered employment where they pay Social Security taxes and are not affected by WEP or GPO. Those individuals will not receive a benefit increase due to the new law.

The most convenient way to apply for retirement or spouses' benefits is online at www.ssa.gov/apply. Please note that the online application continues to collect pension information until we are able to update it; however, we will not offset the benefit.

[The SSA] will take an application by telephone for people who did not previously apply for retirement benefits because of WEP or spouse's or surviving spouse's benefits because of GPO. If you meet these conditions, call 1-800-772-1213 Monday through Friday, from 9:00 a.m. to 6:00 p.m. ET. When the system asks, "How can I help you today?", say "Fairness Act." Then, you'll be asked a few questions. Your answers will help us connect you to a WEP-GPO trained representative to take your claim.

Here's the link I mentioned: https://www.ssa.gov/benefits/retirement/social-security-fairness-act.html?tl=0%2C1%2C2%2C4%2C5%2C11

Information Security –

There’s a ton of news lately about Trump administration officials accessing a variety of personal information stored in government systems. A few people have asked about information security at Schwab and Ridgeview Financial Planning. While we’ve covered this subject previously it’s good to refresh our understanding of how this works in my little corner of the world. (The following details apply to clients who trust me to manage their accounts at Schwab, but the processes are probably similar at your brokerage firm – you can ask them.)

Information Security at Schwab –

Schwab is very conservative when it comes to this topic. This shows up in technology but also in back-office processes because the regulators require it and for a more practical reason mentioned below. They employ two-factor authentication, which is ubiquitous (and sometimes annoying) these days when logging into your accounts. They also offer security enhancements like voice id.

Schwab has a variety of backstops in place to keep a fraudster from making structural account changes, wiring out money, etc, if they actually gain entry to your accounts, which is always possible and why we plan accordingly. Those types of activities have to be signed for, signature verified and then go through an approval process. While this can add time to what should otherwise be a quick request, internal controls like these are absolutely necessary to ensure your information and money are safe.

Beyond that, your information within the Schwab system is private and Schwab will cover losses due to unauthorized activity that it should have been able to catch. Here’s a link with more information about this.

https://www.schwab.com/schwabsafe/security-guarantee

Information Security at Ridgeview –

I keep all of the information I have related to you in an encrypted cloud folder. Each client has their own folder within the HIPAA and SEC-compliant service that I’ve used for over ten years. The file content is encrypted while sitting there and while in transit to you, whenever it needs to be emailed. Additionally, the service encrypts my password so staff at the company can’t access your information either. Basically, it’s as safe as I can reasonably make it.

Our client portal can be two-factor protected (it’s up to you – we can assist in setting this up if you like).

Beyond that, I’m almost always working and personally look at account activity and the variety of alerts I have set up each day. Alerts for money movement, initiating and updating banking instructions, beneficiary updates, and so forth. If I see something I’ll say something. If I get an odd request, I’ll call you to verify. This personal review is an important element, I think, in monitoring for fraudulent activity. I’ve suggested to people that it’s important to review your own account activity (of all your accounts!) at least weekly, but more is better. And you have me doing it nearly every working day, so that’s good.

Additionally, Ridgeview computers are protected by an institutional-grade monitoring system for hard drives and email accounts. This sometimes snags legitimate client emails but also works as intended - my threat monitor chart looks like a mountain range over the course of a typical week – the phishing attempts and fraudulent emails are numerous.

Still, it’s always possible that someone can get into your account so I focus on what the person could actually do. I think the most likely thing would be to create mischief by doing some unauthorized trading or maybe changing your email address. If so, we could have Schwab cancel or reverse those trades and reset your email address. Otherwise, it’s challenging for someone to do something more serious because of Schwab’s internal processes and my personal review.

All that said, let me know if you’re nervous about this sort of thing and we can discuss your specific questions.

Have questions? Ask us. We can help.

  • Created on .

Never a Dull Moment

There’s always something happening in the financial markets and yesterday was no different. I was actually sitting down to write a bit about the numerous questions I’ve received regarding what to do investment-wise related to the Trump Administration. Then the market opened, popular stocks started getting hammered, and the news flow increased dramatically. This event seemed more pressing so we’ll get to investment implications related to President Trump next week.

As you’ve likely heard, some parts of the stock market fell dramatically yesterday while other parts of the market did okay. The issue was a surge of anxiety over the weekend related to reports of a Chinese company ramping up an AI program that costs a small fraction of what the technology currently costs to produce here at home. Sound familiar? The program is known as DeepSeek and reportedly costs about 20x-40x less to produce than equivalent domestic AI models from companies like OpenAI. If that’s true, the burgeoning industry’s economics would have to be rethought and the tens of billions, even hundreds of billions of dollars of corporate investment into data centers and other AI infrastructure could be at risk. This rethinking was happening in real time yesterday and led most investors in AI stocks to indiscriminately hit the sell button.

Ultimately, big AI-related names saw major losses. Nvidia, the most popular AI stock, ended yesterday down about 16% but had been down more throughout the market session. Nvidia’s share price had grown so much lately that as of last Friday it was the largest public company in the world, with a market capitalization (total value of publicly available shares) of roughly $3.5 trillion, which is frankly a little ridiculous. With yesterday’s drop the company’s market cap shrunk to less than $3 trillion and it’s now the third largest public company. This drop was the largest ever for a company in terms of dollar value lost in a day. Yikes. But it wasn’t just Nvidia. Other AI companies suffered major losses, especially those expecting to make money from the infrastructure investments mentioned above.

Share prices for AI-related companies have been rising a lot lately and this has created risky concentrations in the Tech and Communication Services sectors within market indexes. The two sectors make up roughly 44% of the S&P 500, the typical market benchmark, well above historical norms. This helps lift overall performance when these sectors are doing well, but the opposite is also true and, unfortunately, this concentration risk was on full display yesterday.

Larger, more diversified companies in the AI mix like Microsoft and Google fared better, down from about 2% to a little over 4%, respectively. Interestingly, most of the stock market actually did fine yesterday. Within the S&P 500, more than two stocks advanced for every stock that declined. Positive performance from so many wasn’t enough to counter the AI drop, however, and the S&P ended the day down about 1.5%. The tech-heavy NASDAQ ended down by about 3% while the Dow Jones Industrial Average actually ticked up on the day. Bonds were up as well.

Okay, so is all this stuff about AI going to be our next existential crisis? Time will tell a bunch of things, including how true these reports out of China are and what it all means for an industry that’s potentially as revolutionary as the Internet. Along these lines I wanted to pass along some snippets of analysis that my research partners at Bespoke Investment group sent out late yesterday. Check this out for some quick context in a fast-moving situation.

Beyond that, it’s important to note that this is why diversification and asset allocation are important. They’re not always fun or the sexiest investment concept but practicing both consistently helps when trying to monitor and limit exposure to risky parts of the market.

From Bespoke…

… The shock to the market tied to AI over the DeepSeek model’s cost have been profound. One of the big stories of the past year has been surging investment in data centers and the systems that feed them, especially power. From a macro perspective, that underlying demand (along with ongoing investment fueled by fiscal policy over the past several years that is still playing out) has been a huge stabilizer for the economy, along with a relatively wide deficit.

One of the fears from the Fed’s tightening cycle is that interest-rate sensitive sectors would crash, with sharp drops in demand for durable goods and slowdowns in investment, especially related to housing. But as the data today shows and as we’ve seen from homebuilder reports recently, the housing construction sector looks very strong relative to recent history despite those high rates. For housing, the Fed’s tightening was a manageable blow because demographic and long-run factors including underbuilding since 2007 have created a structural supply/demand mismatch. That’s also why home prices moved so little in response to interest rates.

The AI investment craze is a similar supply-demand mismatch… hyperscalers are ploughing unheard of sums into capex as they rush to either build a dominant model or service those who are. That’s created a handoff of sorts from consumer spending (which the Fed has successfully cooled to sustainable levels) fueling the overly hot economy of 2021-2023 to investment even as rates have soared.

Of course […] all of that AI investment needs to earn a return. For much of the past two years, skeptics of the craze have focused on the demand side of the equation: is there actually willingness to pay enough to cover all the investment costs over time, as well as a profit margin for the entities doing the investing? The physical construction costs, GPUs, the power to run them, and the cooling needed have generated impressive equity returns.

But what if increased supply of models rather than not enough demand for them was the problem with the massive investments being undertaken by Oracle (ORCL), Meta (META), Google (GOOGL), Amazon (AMZN), and a host of others? Silicon Valley VCs have been focused on the possibilities of generative AI that might even lead to general AI - a true artificial intelligence that most of us would recognize from science fiction. But a world where AI models are very cheap to train and use in specific and more tailored applications would look very different. The 1990s vision of cyberspace was fueled by Robert Gibson’s Neuromancer but turned out looking more like an American mall that was ubiquitous at the time, accessed by the masses and part of everyday life but not a complete shift in our experience of the physical world.

A version of an AI future that DeepSeek points to is much more like the evolution of cloud computing or basic digital analysis tools like the ubiquitous Excel, email, or chat functions: productivity enhancers that don’t significantly displace labor.

If that’s correct and we have no edge in how the future plays out, there is still enormous profit potential in AI through dramatically higher productivity. But the actual compute necessary to support that deployment environment and the costs associated with it could make $500bn of investment in US data centers look excessive.

As with any other rapid technological advance, it’s also deflationary. Higher productivity per worker means lower labor intensity for a given level of output and ultimately less inflation…especially if the upfront costs of data center investment don’t need to be as high. It’s not hard to imagine a world in the late 2020s or early 2030s where excess compute capacity makes it cheap to deploy a wide range of AI tools which are ultimately controlled and managed by human workers who could do much better quality work much faster, driving rapid increases in standards of living amidst low inflation. But that’s probably not a world where ploughing billions into [Nvidia’s chips] and nuclear reactors [part of the energy infrastructure needed to power AI] creates a high return.

Have questions? Ask us. We can help.

  • Created on .

When Good News is Bad News

Before beginning I have to take a moment to comment on the fires raging in SoCal. The pictures and stories are horrifying. All this evokes memories of our past fires in and around Sonoma County – lives and property lost, local and regional economic impacts, and lingering psychological imprints. All of that is happening down south, just more. My heart and prayers go out to everyone who has been impacted, and to the brave souls fighting the fires.

On to this week’s post…

Obviously there’s a lot going on right now so you may not have noticed the thud made by markets on Friday when, after limping into 2025, stock and bond prices sort of fell down. It wasn’t actually that bad, but it felt a little demoralizing in the context of recent returns.

Last week was one of those odd times when hearing good news is bad news. The good news was we learned our economy has been adding more jobs than expected and, at least in general, our economy is doing better than anticipated. So why would that be bad news for the financial markets? Investors had been expecting that borrowing costs would fall a lot throughout this year but those hopes are getting dashed by a resilient economy that (arguably) doesn’t need much lower interest rates and a Federal Reserve that suddenly doesn’t want to go that route anyway. So more good economic news last week just fed into this rate anxiety.

This helped the broad stock market dip its toe into oversold territory last week, based on a range of recent average prices. Stocks, as measured by the S&P 500, dropped a couple percent for the week and are down about a percent so far this year. Not a big deal all things considered, not even close to a technical market correction, but it smarts a bit after how markets ended last year. Most sectors began this week in oversold or neutral territory and that’s generally a good time to buy more. Stocks are higher as I write this Tuesday morning and managed to close with a gain yesterday as well; buyers following sellers creating normal volatility.

The bond market jumped into oversold territory with both feet, however, with the US Aggregate Bond Index dropping a percent last week. Maybe that doesn’t sound all that bad, but bonds are supposed to be safe and stable, especially when stock prices get volatile. Historically it’s appropriate to expect bond prices to be flat or maybe rise a pinch when stocks fall. However, that negative correlation shows up over a long period of time and a variety of other factors contribute to it in the short-term. The problem is that stocks and bonds have been more positively correlated since the pandemic, moving in tandem much of the time even if the amount of change isn’t the same. This relationship may eventually revert back to historical norms but certainly presents challenges in the meantime.

While the Fed may continue reducing short-term rates, the market is going in the other direction with longer-term rates. The benchmark 10yr Treasury note yielded 4.8% briefly last Friday, a level not reached since late-2023 and is over a percentage point higher than when the Fed started lowering rates last September. This helps stimulate stock market volatility and creates sort of a feedback loop here and abroad. But there’s a silver lining. Falling bond prices means interest rates/yields are higher for new purchases, either when buying individual bonds or bond funds.

At the same time, cash equivalents like money market funds have paid well but those yields have gone down as the Fed reduced rates. A quick review of Schwab’s Value Advantage Fund, Vanguard’s Cash Reserve Fund, and Fidelity’s Govt Money Market Fund show 7-day yields (a standardized indicator of what these funds are paying now) right around 4.2% compared to over 5% last year. While we don’t know how low the Fed will go with rates and how long that will take it seems clear that cash rates aren’t likely to go back up anytime soon.

While there is market risk with bonds and not with money market funds, a variety of bonds now pay more than the typical money market. I see 1yr Treasuries paying about 4.3% and Vanguard’s Total Bond Market fund has a 30-day SEC yield (another standardized metric) of about 4.6%. There’s also some upside potential with bonds and bond funds, but that’s where the market risk comes in.

The bottom line is that bonds have been underperforming but should continue to play a role in your portfolio based on your plans, risk tolerance, and so forth. Bond returns will eventually improve and we could start seeing that shift this year. So if you’ve been keeping cash in money markets in lieu of bonds or otherwise avoiding the bond market, it’s a good time to start switching gears. I favor doing so incrementally, perhaps monthly over the course of this year depending on how much money we’re talking about. Doing so could help reduce your risk somewhat while allowing for bond yields to continue to rise.

Have questions? Ask us. We can help.

  • Created on .

Handling Market Volatility

As you can imagine I’ve been getting the, “What should I do about President Trump?”, question quite a bit lately so I wanted to briefly examine it here. I’m guessing this won’t be my last post on this topic.

Frankly, there’s no simple answer to this question. Let me also say that I try not to let my personal political views bubble up too much in my work. Some amount is unavoidable but I’ve always felt it’s more important to be professional and above all practical in my work of providing financial guidance and prudently investing other people’s money. The correctness of an administration’s policy isn’t as relevant to me as its potential or actual economic and market impact.

That said, regardless of your political persuasion it’s impossible to ignore that the Trump Administration is shaking things up. That’s obviously destabilizing for markets in the short-term as various market participants scramble to determine what it all means for the economy, corporate profits, and market prices. We saw that dynamic play out yesterday following the announcement over the weekend of large tariffs that are planned to be applied to various products from Mexico and Canada, and that according to the president will cause pain for some Americans.

The S&P 500 and NASDAQ indexes were poised to open down by maybe 2% after prices generally fell in foreign markets over the weekend. But as Monday progressed, prices improved based on soothing words from the administration and a general sense of cautious optimism that President Trump isn’t looking to start a trade war, is maybe using tariffs as a short-term negotiating tactic, and that the situation might not end up being as bad as originally thought. All told, the major stock indexes closed down yesterday but not by as much as some of the early news suggested. Bonds were up a little on the day, providing some typical shelter that we haven’t seen much of lately.

However the tariff issue ultimately shakes out (the news is fluid as I type this morning, while markets are set to open pretty flat), investors are left to deal with a lot of noise in the meantime. So what are we supposed to do about this type of headline risk?

I think the most important question to ask yourself is if you’re a long-term investor. That might sound silly given the context but it’s good to remind ourselves of our outlook from time to time. A long-term investor should be willing to endure short-term volatility and uncertainty, and sometimes extended downturns in an effort to make more money than can be made from just leaving cash in the bank.

Assuming your answer is yes, and you’re worried about market risk related to the Trump Administration, you should consider the following steps to review and maybe shore up your portfolio.

Is your mix of stocks and bonds appropriate for your situation? Are you comfortable with how it looks right now? This isn’t about recent investment performance. Instead, think about risk management.

Rebalance your portfolio to decrease risk. Last year was good for stocks so there’s likely some opportunity there. You could also sell from stocks that have performed well and use the proceeds to pay down debt or help fund something real like a vehicle purchase or a vacation.

Do you have a high percentage of your portfolio in stocks? If so, and maybe in any case, what does your sector and style breakdown look like? How about foreign exposure?

Do you have too much (relative to a benchmark like the S&P 500) in AI-related stocks, tech stocks more broadly, or even concentrations in Consumer Discretionary or Industrial stocks that could be first in line to get whacked by tariffs? These “overweights” can come from individual stock positions or be buried within the funds themselves.

Are there individual stocks within your portfolio that make you uncomfortable? It can be challenging to pare these names back or eliminate them entirely, but the first step is determining if it’s an issue. Your humble financial planner has the tech to do this easily but look at holdings lists for funds in your portfolio via a Google search.

Do you have too much allocated to small- or mid-cap stocks that are generally more volatile and more susceptible to inflation potentially caused by tariffs?

Essentially, review your allocation and look for any flashing red lights, as I call them, or things that stick out when compared to the S&P. If you have some, are they for a good reason like imbedded taxable gains, or are they just “there” and need to be corrected?

Do you have the right amount in bonds? If you’re retired, how much cash do you need from your investments in the coming few (or four) years? I’d argue that if you have at least this amount of cash stored in bonds and cash equivalents like money market funds and CDs, that you should be able to handle pretty much anything that market history has thrown at a well-structured diversified portfolio. Maybe add a little cushion to this if you like. Just don’t go too far because even with market volatility, cash left in your bank account or idling at your brokerage firm will ultimately underperform stocks, perhaps to a large degree. This can easily be accomplished within your IRA and Roth IRA (and your workplace plan), and your brokerage account (with an understanding of your tax situation).

Treasuries and highly-rated corporate bonds have lagged (that’s the kind word to use) but they serve a purpose: they’re a very safe liquid investment and a great store of cash. And shorter-term maturities of less than five years are generally safer anyway, so you could find some shelter there if you like.

For shorter-term bonds I like individual Treasury bonds or even bank CDs, depending on which pays more at the time. In either case, your cash is secured by the Federal government and your interest rate and maturity date are fixed. As I type, I see in the Schwab system that 1yr, 3yr, and 5yr Treasury bonds pay about 4.2% to 4.3%, very close to bank CDs. You could build a ladder of annual maturities going out 3-4 years and decide about reinvesting when each bond matures. It’s an easy and cheap option that should be available in any account type at any major brokerage firm, with the exception being workplace plans. There you might have a money market fund or perhaps a “stable value fund” option. Beyond that, mutual funds and exchange traded funds are good here as well, they just come with some market risk. Vanguard’s and Fidelity’s Short Term Bond funds are good examples.

Are you still saving for a retirement that’s at least a handful of years down the road? If so, you’re still in the accumulation phase so meaningful downside market volatility should be seen as a buying opportunity. Those opportunities usually don’t last long, so regular funding of your retirement accounts is helpful, as is regular monitoring for rebalancing opportunities.

Okay, that’s it for some basic steps to take. You may think these seem standard because they are. These are fundamental aspects of investing that we can control. It’s important to double down on these steps whenever markets (and/or the political environment) get weird.

I’m doing this for you if I’m responsible for managing your portfolio but you’re always welcome to ask questions, to let me know of fundamental changes to your financial situation, industries and companies you’d prefer to omit, and so forth.

Have questions? Ask us. We can help.

  • Created on .

Out with the Flu

I don't get sick very often and I can't recall the last time I was sick on a Monday and Tuesday. Since that's when I write these weekly blog posts, this is unfortunately all I have the energy to come up with. Enjoy the week and I'll be back to you with a post next Tuesday.

- Brandon  

  • Created on .

Quarterly Update

The fourth quarter (Q4) of 2024 ended with a depressing slump but otherwise continued what had been a strong year for US stocks. Foreign stocks perked up occasionally, as did US bonds, but our domestic stock market was the clear standout in terms of generating performance. The expanding AI industry, Fed policy, and inflation once again played important roles during the quarter and year while election outcomes in November reset expectations.

Here’s a roundup of how major market indexes performed during Q4 and for the year, respectively:

  • US Large Cap Stocks: up 2.5%, up 24.9%
  • US Small Cap Stocks: up 0.3%, up 11.4%
  • US Core Bonds: down 3.1%, up 1.3%
  • Developed Foreign Markets: down 8.4%, up 3.5%
  • Emerging Markets: down 7.3%, up 6.5%

The stock market was consistently strong during most of 2024 after a solid 2023. The AI boom continued to lift “growth” sectors like Technology and Communication Services. There were some bouts of volatility, especially in late Summer but the S&P 500, the typical benchmark for US stocks, stayed above its 200-day moving average the whole year. The S&P hit 57 all-time highs throughout 2024, the most since 1928. Technology stocks, including companies like Nvidia and Apple, accounted for roughly 40% of the S&P’s return while Communication Services stocks, such as Meta and Google, accounted for about 20%, so performance was again tilted heavily to certain sectors. My research partners at Bespoke Investment Group found that the Magificent 7 (popular stocks propelled by the AI boom) now make up 33% of the S&P’s weighting, slightly more than the Tech sector itself at about 32%. And Apple, Nvidia, and Microsoft account for nearly 60% of the Magnificent 7. Growth from these companies boosts returns for the whole market in the short-term but concentrations like this can work the other way as well. It wasn’t all about AI, however. The Consumer Discretionary and Financial Services sectors also posted strong gains, up 29% and 28% for the year, respectively. At the other end of the spectrum Energy, Real Estate, and Healthcare sectors finished the year up slightly while the Materials sector was the lone loser, falling nearly 2% for the year.

November’s election impacted markets in a number of ways but something interesting was Bitcoin hitting $100,000 per “coin” during Q4. Notoriously volatile, the cryptocurrency was rallying going into Election Day and took off when Donald Trump won his second chance at the White House. The reasons why are varied but seem focused on expectations for a friendlier regulatory environment under the new administration. While this seems reasonable, only time will tell if crypto speculators are right.

Expectations for lower interest rates also had an impact on market returns last year and certainly in Q4. For most of the year investors had been expecting the Fed to start aggressively reducing interest rates as inflation continued to fall, but the first change didn’t come until September. The Fed reduced its short-term rate benchmark by half a percentage point during that month’s Open Market Committee meeting, in line with market expectations. The Fed then lowered rates by a quarter point each during its November and December meetings. However, inflation seemed to perk back up so the rhetoric around these decisions, especially in December, led investors to reevaluate expectations for how low rates might go in 2025. Investors had been anticipating short-term rates might fall by a full percentage point or more in the new year but, as of this writing and based on the CME Group’s FedWatch Tool, this has been revised to maybe a quarter to a half point drop. Uncertainty around this caused major stock market indexes to fall from a few to several percent as the year ended in true anticlimactic fashion.

All this again dragged on bond prices during 2024, but mostly during Q4. Prior to that, bond investors had been pricing in the aforementioned rate cut expectations which helped the Bloomberg US Aggregate Bond Index peak at over a 5% return for the year by mid-September. It was downhill from there to the 1.3% annual return and the expectation reset mentioned above. Prices fell as yields rose. The benchmark 10yr Treasury yield ended the year at nearly 4.6%, up from September lows and impacting, among other things, 30yr mortgage rates which hit 7.3% as the year closed. So 2024 was another challenging year for investors who favor the safety and liquidity of investments like US Treasurys and high-quality corporate bonds. Typical money market funds returned close to 5% for the year, more than core bonds and other traditionally safe investment options. Elsewhere within the fixed income realm lower-quality “junk” bonds returned nearly 8% for the year and preferred stocks gained roughly 7%.

So we’ve had a good run for stocks and I still think the economy and markets have a tailwind. That said, there’s bound to be volatility stemming from uncertainty about the new administration in Washington, global instability, and a host of evergreen issues like inflation, Fed policy, and when, not if, we’ll see our next recession, just to name a few. If you’re still saving and don’t need cash from your investments anytime soon, you can leverage volatility by investing more when prices fall, either by rebalancing or investing new money. If you’re spending from your investments, this might be a good opportunity to replenish your cash, pay off some debt, and otherwise batten down the hatches. (I’m not trying to be negative, just practical following a good year with relatively low volatility.) Otherwise, I’ll continue to rebalance your portfolio as needed if I’m responsible for managing it. Let us know how we can help with any of this.

Have questions? Ask us. We can help.

  • Created on .

Contact

  • Phone:
    (707) 800-6050
  • E-Mail:
    This email address is being protected from spambots. You need JavaScript enabled to view it.
  • Let's Begin:

Ridgeview Financial Planning is a California registered investment advisor. Disclaimer | Privacy Policy | ADV
Copyright © Ridgeview Financial Planning | Powered by AdvisorFlex