The first quarter (Q1) of 2025 began well but ended in a confused slump driven primarily by political anxiety. This uncertainty fed into consumer and investor confidence that declined throughout the quarter and caused a correction in major stock market indexes like the S&P 500 and NASDAQ. Bonds perked up as investors rushed to safety which helped buoy performance for balanced portfolios. That lift was good to see after a few crushing years for bond investors, but it unfortunately took pain in the stock market to get there.

Here’s a summary of how major market indexes performed during Q1 and for the year so far:

• US Large Cap Stocks: down 4.3%
• US Small Cap Stocks: down 9.5%
• US Core Bonds: up 2.7%
• Developed Foreign Markets: up 8.1%
• Emerging Markets: up 4.5%

If there was one word to define the quarter and the day-to-day reality of the markets during Q1 it would be tariff. The Trump administration made rebalancing global trade through the use of tariffs a key part of its election pitch and kicked off 2025 with a slew of tariff announcements. There would be 25% tariffs on goods from Canada and Mexico, then Columbia, then smaller tariffs on goods from China, followed by other tariffs on goods such as steel and cars made outside of the US. Some of the tariffs went into effect during Q1 while others were paused or renegotiated. Some were set to start just after Q1 closed, while others were planned as reciprocal tariffs. Most of these announcements and related news adversely impacted investor confidence and market prices almost in real time. And when this news was added to additional policy announcements not directly related to the markets but that were still unsettling for many, these changes quickly destabilized what had been a positive market outlook as the year began.

Investor optimism surged to a record spread over pessimism immediately following the November election. Unfortunately this began to fall into year-end. Each subsequent month showed declines, ultimately by March hitting the Conference Board’s lowest level for its survey of investors since late 2022. This tracked with declining consumer and business confidence, although when parsed for political affiliation it was clear that republicans were more optimistic than democrats and independents. Still, the rapidly changing outlook spurred market analysts to further adjust their economic forecasts as Q1 progressed and recession/stagflation fears were discussed. This kicked into high gear during February, sending major indexes into a correction. There were brief rallies along the way and the final day of the quarter saw stocks climb out of a whole to finish strongly, but the overall tone was still negative.

Most domestic stock sectors ended the quarter in oversold territory except for Energy, which was a standout performer, rising nearly 8% over Q1. Consumer Staples ended the quarter up about 2%. Healthcare and Utilities stocks also fared decently, but the Tech and Communication Services sectors make up about 39% of the S&P 500 and fell by about 11% and 1% for the quarter, respectively. Negatives easily weighed down the positives.

It was a different story overseas, however. As political anxiety stretched beyond borders, a global defense reshuffling spurred markets in Europe. Germany proposed spending over one trillion euros on infrastructure and defense, reportedly related to concerns about its alliance with the US. Germany doesn’t like to borrow but has been in a recession so perhaps the German government needed a good excuse to juice up its economy. Whatever the reason, news of dramatic spending plans helped the typical European index rise during Q1 from around 7-13%, depending on its composition. Since these are only proposals, time will tell the lasting impact on markets. Emerging markets were generally higher as well with the typical index up nearly 5% for the quarter.

Q1 saw some signs of life in the US bond market. Longer-term bonds did better than shorter-term and inflation-protected bonds performed best, but most parts of the bond market rose about 2% or more over the quarter. Many investors had been looking elsewhere for safety and income since 2022 but finally felt safe piling into bonds as inflation showed signs of stabilizing and the Federal Reserve offered a reasonable outlook for rate changes this year. This more positive view toward bonds helped push the yield on the 10yr Treasury note, a key market and economic benchmark, to about 4.25% as Q1 ended after peaking at around 4.8% in January. Cash equivalents like money market mutual funds still offered around a 4% annualized return throughout the quarter and, while they technically underperformed bonds, are still a good place to store short-term reserves for the time being.

There’s no way to sugarcoat that this is a concerning time for a lot of people. While it’s far beyond the scope of this note to offer much about the broader societal themes being discussed so much lately, I can offer a reminder about the counter-intuitive nature of long-term investing. According to my research partners at Bespoke Investment Group, the S&P 500 has been higher six and twelve months later seven out of eight times that investor confidence has reached such a low point. While there’s no guarantee that will happen this time, investor anxiety and fear is usually a contrarian indicator. It’s uncomfortable to go against the grain but it is absolutely something we have to deal with periodically as long-term investors. As always, please don’t hesitate to ask questions.

Have questions? Ask us. We can help.

It’s been a wild several weeks in the markets and elsewhere. News flow has been fast and furious and doesn’t seem to be slowing anytime soon. This impacts stock and bond prices, as you’re no doubt aware, with major stock indexes down year-to-date, while bonds have picked up a little slack. Investor mood has gotten pretty dark. The “R word” is being discussed again and if the economy does dip its toe into the red maybe it goes down as the first “r” caused by everyone just needing to take a breather.

As always, I’ve been monitoring portfolios that I manage for clients and making tweaks where needed. Sometimes this has meant adding to stocks on weakness, but it’s always based on trying to ensure that your investments are of good quality and are in the proper proportions for your situation.

I could go on but instead I’ll flip the script this week with a personal story if you’ll indulge me.

A year ago I participated in a race down the coast of Florida from Tampa Bay to Key Largo, a distance of nearly 300 miles depending on your route. This race, the Everglades Challenge, has been going on for many years and is for small boats without motors. Think of sailboats that one or two people can drag along a beach, or kayaks that can be paddled.

The rules are pretty straightforward. Start from the beach and sail or paddle to Key Largo while passing through three checkpoints. No outside support is allowed, so you’re carrying all of your food, safety gear, and enough water to get you to the next checkpoint. You have eight days to complete the distance and many participants treat the event as intended: a challenge. But for others, including yours truly, it’s a race.

Of course it’s a race and why not? People like to test themselves against the elements and others to see what sort of stuff they’re made of. That sentiment and the desire to say yes to new experiences got me into the race last year and maybe the wildest four days of my life. A year later and ready for round two? Why not, let’s do it.

First let me back up a bit. Some of you know that I like to run ultramarathons, sometimes on roads but mostly on trails. I wanted to diversify a bit so I got into paddling, first standup paddleboards then outrigger canoes and most recently kayaks. I seem to be wired for “ultra” and that easily extended to the paddling realm.

Along the way I met an experienced ultrapaddler who showed me the ropes and, in many ways, taught me everything I know about paddling. He had done the EC, as it’s known, eight times and had several fast finishes including a record as a solo paddler. One goal eluded him, however, the blazing fast tandem record of 2 days and 20 hours (set by a team including an ex-special forces guy if I understand the lore correctly).

It took a different partner and I nearly four days to complete the EC last year, which was pretty good mind you. But cutting that down to maybe 2.5 days? Yikes, that sounded like an audacious goal! One of the issues with a race like this is the ever-changing conditions you have to deal with. Wind direction and speed. Tidal shifts. Darkness. Sleep deprivation. Hydration and nutrition. Manatees (that may sound funny but they can cause some issues in shallow water). Seemingly vast distances to cover by human power alone. And those are just some of the known issues.

After some consideration I said yes to the goal and we started training. We paddled a fancy 22’ racing kayak through the cold, the rain, the swells, the night, all to prepare to give this year’s EC our very best, not knowing what conditions we’d ultimately face.

As the calendar ticked down to the race start on March 1^st we anxiously watched the weather reports. We’re basically heading south for most of the race so expectations of a north wind seemed auspicious. Sure enough on race morning we were able to fly off the start with semi-wild grins on our faces. How long would it last?

Our goal was to finish well under the prior record if possible. This meant keeping an overall pace of at least 5 mph after accounting for required checkpoint stops at 60, 160, and 215 miles, or simply getting out to stretch. So we planned to stop as little as possible.

Fortunately the north wind stayed with us for most of the first 24 hours. We took nothing for granted, assuming the wind could die or, worse, change directions, at any time. Maybe we spent an hour out of the boat between the first checkpoint, quick stretches, and having to bail water after getting swamped while riding waves half a mile offshore because we didn’t have our spray skirts on. This persistence allowed us to cover over 120 miles during the first 24 hours, slightly better than the math said was possible. We thanked the weather gods many times that day.

But the good conditions continued. The second evening found us at the second checkpoint in Chokoloskee, a small “town” after Marco Island and the last outpost as we progressed to the Everglades. The time was about 6pm and we’d covered nearly 160 miles at that point. Apparently this was a blazing fast arrival time. We wanted to get in and out quickly but an updated weather forecast seemed ominous and slowed our departure.

Our beloved breeze from the north was expected to build through the night and get nasty, potentially turning our overnight 40-mile run in the open Gulf into a string of opportunities to flip. We had almost no moon, the air temperature was cool, and there wouldn’t be many places to hide based on our intended route. Flipping a kayak in open water is always possible but was definitely something we hoped to avoid. In what would prove a theme for most of our race, our persistence and insistence on not taking anything for granted paid off. The north wind picked up but the conditions were fine overall.

I remember this section fondly from my first EC last year. This is where I first experienced bioluminescence and calm and balmy conditions that carried me through the night. This year was more intense but we had a great time. We watched a rocket trace the sky. The night was so dark that the stars looked like diamond dust on a black canvas.

Sleep deprivation was starting to take its toll, however. For me, the stars started presenting as wisteria vines dangling from celestial trees. It was hard to tell where the dark water stopped and the black sky began. We were still functional but cracks were beginning to show. We stumbled into three sandbars in the middle of nowhere. I was finding it difficult to keep my paddle strokes in time with my partner’s (he was up front steering via foot pedals). Our goal for this leg was Ponce De Leon Bay, a main entrance into the Everglades at about 200 miles into the race. We’d planned to enter by about 8:30am, the 48hr mark. Impossible to miss by day, we were so far ahead of schedule that as we approached the bay at maybe 3am, we wondered if we passed it and were now heading around the cape of Florida.

This was one of those times where trust is critical. We trusted each other but we began to mistrust our technology. We had some earlier issues with our GPS but had a backup and our track was clear. We simply needed to reset our minds and not overthink our plan. Plan the work and work the plan, so to speak. Ironically, after covering so much distance so quickly it came down to simply not getting there yet. A short while later we left the lumpy but not unfriendly Gulf and paddled into the Everglades.

The Everglades. Last year I mentioned in my post how I felt almost let down because all I saw during the day was mangroves and headwinds. This year the dark night obscured the massive mangrove forests. We didn’t stop to point our lights into the darkness surrounding us – probably a good idea! I’m sure I was imagining those crocodile heads floating on the water as we passed.

Sunrise found us still in the Everglades (it’s so huge – maps don’t do it justice) but rapidly approaching our final checkpoint at another far-flung outpost, Flamingo. It was maybe 9:30am and my partner, after all the hours steering and working the GPS simply had to rest. We were both hallucinating but his were more pronounced and daytime seemed to amplify them, which isn’t good. We agreed he’d sleep for an hour while I cleaned up the kayak which badly needed it.

At this point we were nearly there. Roughly 30 miles remained but this is when the weather gods reminded us of that oldy but goody: ain’t nothing free. We had to travel east across Florida Bay from Flamingo to get to Key Largo and that’s exactly where the wind was now coming from at about 20mph.

Rounding that corner and heading east into the wind was certainly a challenge, and perhaps it was a fitting end to our race. What might have taken us 6-7 hours in good conditions took nearly 11. We’d head from one string of mangrove islands to the next for shelter, take a bite and a drink, and then repeat without leaving the boat. Endlessly.

We were both exhausted. Fortunately my partner getting some sleep helped keep us on our GPS track. Florida Bay is very shallow for long stretches and narrow channels are marked but confusing – navigation isn’t as simple as “just head East and you’ll get there”. In addition to the headwind we were also fighting the tide, so finding any deeper water, even a few feet deep, was critical to maintaining speed.

My hallucinations were gaining control. We could have ended up in Cuba if I were navigating. I was disassociating from my activity. At times I saw myself in sort of a split screen where whole thoughts and dialogues took place while I hammered away with my paddle. For a time I wasn’t entirely sure what we were doing. Were we on another training paddle? Wait, who is this guy in front of me? Was he the one who taught me about all this paddling stuff, or wasn’t it Kenny Chesney? At one point I “woke up” to a burning lower back. My paddle stroke rotation had rubbed my back raw and it was on fire. At the next mangrove island I fiddled with my back pad but it was really no use. My skin was aflame but the only thing to do was to throw some Vaseline on it and try to lean forward while paddling. We had to get home and crying about it wouldn’t get us there any faster. Still… ouch!

The bay spread before us as the water depth increased and the sun set. Unfortunately the wind strengthened and drove waves into us head-on for the next couple of hours as we clawed our way toward tiny lights growing in the distance.

As soon as the sun went down my hallucinations seemed to turn on fully formed. Geometric shapes lined hillsides of translucent water that seemed like snow and smoke. I found it harder to keep my paddle strokes in time. For a while I felt like I had no paddle but used my hands to match my partner’s strokes. I may have been out of sync but I was working harder than ever, feeling the pull of each stroke like those ice climbers who race up frozen waterfalls, except that we climbed for hours not minutes.

Eventually we made it to the Keys and the calm that comes from being done. We felt exhausted but elated finishing the race at 9:22pm after 2 days and 13 hours of paddling, covering roughly 260 miles from Saturday morning to Monday evening. This was hours ahead of our ideal time, and hours more ahead of the tandem record. The next paddlers took about two days longer to finish and more took longer still. Also, apparently I’m the only paddler to have completed the race without sleeping – sort of a dubious distinction given the last few hours of the race.

In the end this year’s EC was one for the record books and that, plus the experience itself, is something I’m proud of and won’t soon forget. Not a bad way to spend a long weekend.

- Brandon

Have questions? Ask us. We can help.

Last week we discussed the Social Security Fairness Act and how it ended the Windfall Elimination Provision and Government Pension Offset processes that were used to reduce benefits for some Social Security filers.

This week I wanted to provide some additional information about the scope of the change and its potential impact.

First, the link below goes to a three-pager from the Congressional Research Service. Among other things, the paper discusses how, as of last month, over 3 million Social Security beneficiaries have seen their benefits reduced or eliminated by the WEP and GPO. California and a handful of other states account for roughly 60% of these numbers. Many of these beneficiaries could see hundreds of additional dollars per month tacked onto their Social Security benefits while others, such as spousal beneficiaries and widows(ers) could see, on average, nearly an extra $1,200 per month. And there’s maybe 6 million more workers that haven’t yet retired who can now plan for a WEP-less retirement. So this reversal is going to be a big deal for many households.

Remember this change is retroactive to January 2024, so monthly Social Security checks will rise for impacted folks and they’ll also get a lump sum for over a years’ worth of the difference. Even though not every Social Security dollar is taxable as income, this change will likely create some tax issues for recipients. It’s a good problem to have, of course, but you’ll want to address this issue with your tax advisor and/or humble financial planner.

But it’s going to take some time. The Social Security Administration hasn’t updated their site since I wrote about this last week but the speculation is that actually implementing these changes and getting money to impacted filers could take at least a year from now.

crsreports.gov

What should you be doing if you think this change will impact you? As I mentioned last week, you can call the SSA and follow the prompts I listed and that are also available on their website. Assuming you get someone on the phone, they should help you understand how this law change pertains to your specific situation.

The next best thing would be to get a current copy of your Social Security earnings record, a year-by-year list of how much income you’ve paid payroll tax on. You’d get this by registering for the portal at www.ssa.gov and then downloading a copy of your statement. Assuming your earnings seem correct, you can back into what your unadjusted Social Security benefit is likely to be. I don’t think SSA’s free benefit calculator can handle this sort of thing but I may be wrong. Other calculators exist that are arguably better anyway, or at least easier to use.

The following link takes you to a company called Covisum. This is a software company in my industry that created a free downloadable calculator to help with this process. The calculator is meant for financial planners and seems relatively straightforward, so it’s worth a shot if you’re a DIYer. Additionally, the company has a really good webinar on this topic and within the same link below that’s free to watch. It provides some good background and would be helpful for context even if you don’t use their calculator (and you certainly don’t have to!).

https://www.covisum.com/kitces-ssfa

I use software from another provider for this type of thing so I’m available to help as well.

Both the Congressional report and the webinar I just mentioned also address the looming issue of Social Security default. Doing away with the WEP and GPO provisions will help a lot of people, but this extra money only drains a leaking bucket faster, if you want to think of it that way. Apparently that difference speeds the 2033 to 2035 default timeline by about six months. Default in this context refers to the Congressional Budget Office estimating that the SSA would be able to afford benefit payments of about 78% of what they are currently – not running out of money by then and being able to fund 0% of payments. Still, a 20+ percent benefit reduction actually happening would be a massive problem for what by then would be an even larger percentage of our population.

See this SSA page for an update as of last August https://www.cbo.gov/publication/60679

Unfortunately that pours cold water on otherwise good news, but it’s the reality of the situation. As with the WEP and GPO repeal, Congress regularly gets the same essential recommendations on how to “fix Social Security”, so it’s not like there isn’t a plan. The difference with WEP and GPO was that, for at least a moment, there was the political will necessary to address the issue. I’m confident this will happen with the Social Security problem but, if past is prologue, it won’t be until the last minute. Since that’s a whole separate topic and I try to keep these posts short, we’ll save that for another day.

Beyond that, and to repeat myself, you’ll want to get into the details if you’ve been directly impacted by the WEP and/or GPO. Much of the leg work will be your responsibility but let me know if you have questions and I’ll be happy to help as much as possible.

Have questions? Ask us. We can help.

There’s been a lot going on over the past month or two. So much that it seems like a part-time job keeping up with it all. I’m guessing you may feel the same way. Some are excited and energized by the variety of news while others are unsettled, and that’s putting it mildly. Much of the news isn’t directly related to the markets but the cumulative weight of it impacts investor mood and we’ve been seeing this play out in stock and bond prices.

As of last Thursday the S&P 500 index had fallen about 10% from its recent peak barely a month ago, a technical correction. The tech-heavy NASDAQ index fell nearly 14% in the same timeframe. That may feel like a lot because it happened so quickly, but we’ve experienced deeper short-term declines before during Covid and the Financial Crisis, for example.

Historically, according to my research partners at Bespoke Investment Group, the declines of the past few weeks are about average in terms of market corrections and we usually see at least one correction per year. However, these declines can be demoralizing when they happen so quickly on top of all the other news we’re digesting right now, so it was good to see a bounce of 2+% on Friday and stocks closing up yesterday.

Here's a brief summary of the news specifically impacting markets.

Tariff concerns, inflation, and recession –

Inflation has continued to stabilize across the economy. Inflation expectations are ticking higher, however, largely due to uncertainties around the Trump Administration’s tariff policies. Which tariffs stick, how high they’ll go, and how long they’ll last is anyone’s guess, but fears about them are showing up in boardrooms and around kitchen tables throughout the economy. The rest of the economy is doing reasonably well so how much this impacts corporate and personal spending will take some time to play out. That’s not really new information but it underpins much of the uncertainty in the markets right now.

Treasury Secretary Bessent has suggested in recent weeks that the economy might go through a “detox” and that there’s no guarantee we won’t see a recession. I think he’s probably right and others agree. Google searches for “recession” spiked recently for the first time since 2022 when we experienced two quarters of negative GDP growth (the back-of-the-envelope recession definition). The market thinks the Fed might reduce short-term rates by this summer, perhaps in response to an economic slowdown. We’ll hear the Fed’s opinion on all this tomorrow, so that will be interesting as usual.

Declining consumer sentiment –

All this is impacting sentiment. This isn’t new information either but it’s developing. The University of Michigan has been reporting a worsening consumer mood so far this year and, while this is skewed based on political affiliation, each of the last few months is worse than the prior month on inflation expectations, current conditions, and unemployment expectations. This is only consumer opinion however, but was updated last week and helped fuel the stock selloff.

Stock market valuations –

Stock prices rose following Election Day after a solid couple of years. Many suggested that valuations were high and primed for a pullback. Valuations can stay elevated for some time and usually don’t cause market declines alone, but high prices can provide cover when investors get freaked out.

Bearish investor sentiment –

The American Association of Individual Investors regularly publishes data on investor sentiment and, as you can likely guess, it’s in the dumps. Last week the AAII said that over 55% of investors surveyed expressed bearish sentiment for the third week in a row. This gets us near to Covid and Financial Crisis levels, although not near the lows of those periods. Investor sentiment is typically a contrarian indicator and these readings seemed overblown. That probably helped buyers come back over the past few days – again, it’s a contrarian indicator.

Government shutdown –

As last week progressed we were looking at an increasing likelihood of a government shutdown happening over the weekend. That potential crisis also fueled the stock selloff but was averted at the last minute and helped stocks to surge on Friday. Like it or not and appreciate the details or not, we won’t have to worry about shutdown risk until at least September, so that’s something to cross off the list of uncertainties.

Social security –

While news about the SSA doesn’t directly impact stock and bond prices, it adds a negative layer to sentiment. Government officials have referred to the program as a Ponzi Scheme and there have been numerous articles lately explaining how fragile the payment system technology is. And this morning there’s news (or maybe just rumor) about a “plan” within the SSA to disrupt payments for certain recipients. Whether all this “news” is true or not, rumor or not, it’s understandable that current benefit recipients are stressed about it.

What to do about all this?

Stock market volatility is likely to remain high for a while; there’s just too much uncertainty. But that’s to be expected and something we have to deal with as long-term investors. And we have to deal with the rapidity of change as well.

Most balanced portfolios are about flat for the year because while stocks have fallen a bit (down about 3% ytd), bonds have picked up some of the slack (up about 2% ytd). Because the various asset classes and sectors in your portfolio probably aren’t that far out of balance, there may not be opportunities for large-scale rebalancing. But I’m still watching daily and will act accordingly for portfolios I’m responsible for managing. Otherwise, keep contributing to your retirement accounts if you’re still in savings-mode because volatility can be your friend by helping you to buy at a discount.

Regarding Social Security, we’ll have to wait and see what, if anything, untoward happens with the system. But I doubt it (as I knock on wood…). That said, I can test your plan to see how benefit reductions of X% might impact you and we can come up with contingency plans.

I may miss next week’s post as I’ll be travelling that day. Otherwise, have a great week!

Have questions? Ask us. We can help.

Good morning. I hope your week is going well. Before we get started I wanted to let you know that I’ll be skipping next week’s post as I’ll be out of the office on Monday and that’s when I usually write these.

The stock market dipped a bit last week in part due to news about falling consumer sentiment. I wanted to spend a few minutes looking at this because while sentiment news can move markets in the short-term, it also has broader implications for the economy and topics like inflation as well.

The University of Michigan is among the most prominent of many organizations that track this stuff. Last week they said sentiment fell 10% from January after January fell from December. Sentiment declined among all consumers surveyed, however there were notable differences between income, wealth levels, and political affiliation. Consumers mentioned tariffs as one their largest financial concerns, although those responses were mostly from Democrats and Independents apparently regardless of household income level. Republicans reported being concerned about these issues but much less than others and their general sentiment levels were unchanged from January.

Consumers also mentioned inflation as a key concern. Here as well Democrats and Independents said inflation is growing a problem while Republicans disagreed. All told, consumers who were surveyed expected inflation to keep rising to over 4% this year and that rising prices for durable goods like computers and cars would rise the most, driven primarily by potential tariffs. That’s a reaction to very recent news but how long these pessimistic feelings persist is an open question. Beyond that it’s incredibly difficult, if not impossible, to determine which side’s outlook is correct because their views seem so different.

Probably like you, I don’t have a clear answer for why this dichotomy exists, but it’s hard to ignore a chart like the one below that comes from my research partners at Bespoke Investment Group using University of Michigan data.

Here’s another chart, this time from University of Michigan itself showing consumer sentiment broken out by income, regardless of political affiliation.

And here’s another chart demonstrating how the more assets you have the less inflation seems to matter.

Here’s the story from the University of Michigan so you can read more if you like.

https://news.umich.edu/consumer-sentiment-drops-as-inflation-worries-escalate/

On the heels of the consumer sentiment news last week we also have the Wall Street Journal reporting that the top 10% of earners (households earning at least $250,000 per year) are fueling half of the consumption within our economy and perhaps a third of our gross domestic product. This is a record based on over three decades of data when spending from this group accounted for 36% of consumption.

The article didn’t mention political affiliations but focused on how households with assets like houses and exposure to the stock market did much better coming out of the pandemic than pretty much everyone else. That’s not necessarily new information but what’s new is breadth of its impact.

The following chart from the article shows that higher earning households were able to save more during the pandemic and these savings often bought more assets versus going directly into consumables. Government stimulus, Federal Reserve policy, and a variety of other catalysts helped these assets appreciate which lessened the impact of inflation for those holding the assets. It also boosted the wealth effect for these households which, in turn, helps boost their spending. It’s a virtuous cycle that unfortunately has driven the wedge deeper between those with assets and those without.

I’m posting a link to the article below and can send it to you from my account if you hit the paywall.

https://www.wsj.com/economy/consumers/us-economy-strength-rich-spending-2c34a571?mod=hp_lead_pos8

Okay, so what are the investment implications related to these news stories?

Consumer sentiment is considered a leading market indicator but it can also be a coincident indicator when consumers appear to react to news in real time, such as over the past month. It’s not a good predictor of a market crash but it’s a pretty good recession indicator and that makes sense. If consumers pull back meaningfully on their spending long enough for any reason, that causes ripples since our economy gets roughly 2/3rds of its business from them. But if a relatively small number of households can support half of our total spending and those consumers remain happy, maybe that could help drag the economy along while the rest stabilizes? None of this means we’re in for a recession or major market decline in the near-term, but it’s a warning sign to pay attention to for sure.

That said, try to avoid making major changes within your portfolio if you’re feeling nervous (which is a reasonable response, by the way!). Instead, rebalance your portfolio by selling some stock investments that have been doing well and use the proceeds to pay down/pay off debt that’s more expensive than, say, 4% per year. Other than that, you could make market gains real by paying for trips, gifting stock shares to family or charity, buying a vehicle, or completing overdue home maintenance. Or you could simply generate some extra cash for spending over the next year or two if you’re retired. In short, stock market returns have been good for a while so it’s prudent to take some off the top where appropriate and get some things accomplished. Just don’t let headlines push you too far away from your long-term plans. Otherwise, rebalance from stocks to bonds as appropriate and remember that if you’re still working and saving for retirement (or you’re not relying on your investments for retirement income), meaningful market dips along the way are buying opportunities.

Have questions? Ask us. We can help.

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.