Broker Check

State of the Union Year 2

October 18, 2022

The end of September meant the 2nd anniversary of Birds Eye Wealth Planning.  While year 1 brought excitement of starting the company, utilizing new technology for my clients and a soaring stock market through December 2021, year 2 has represented just pain…for all of us.  As I write this today, here is the status of various indexes:

S&P 500(25.4%) This is the broadest representation of large cap American stocks

NASDAQ(35.2%) A very tech heavy index headlined by such companies as Apple, Amazon, Alphabet (Google), Microsoft, Meta (Facebook) and Tesla

MSCI(29.16%) This is a broad representation of developed international countries

Barclays Aggregate Bond  – (16.6%) This is a broad measure of investment grade bonds in the United States.  Let’s start by focusing in more on this index.

The bond portion of your portfolio has always supposed to provide the buffer when we experience volatility in the equity markets.  There is an old saying, when stocks go down, bonds go up and vice versa.  That’s not 100% accurate, but in the majority of markets, bonds have typically been able to hold up well in years that equities have fallen.  If we look at the last two major years of losses, in 2008 (the financial crisis), the Barclays returned 5.24% compared to a loss of 36.55% in the S&P.  In 2002 (The last year of the tech bubble) the Barclays returned 10.23% against a loss of 22.97% for the S&P.  Since 1980, the worst bond market we experienced was in 1994 when there was a negative return of 2.92%.  Compare that to a current loss of 16.6% and you can see we are truly in unprecedented times.  This has caused a much larger drawdown than any modeling would have predicted and is causing heartache for many retirees even with conservative portfolios.  

As most of you can attest, I have always said that over a full market cycle, you will certainly experience down years and even more down quarters or months no matter how well I manage the portfolio.  However, the tried-and-true practices of using fixed income as a buffer has blown up in our face.  There is a reason every financial piece of news needs to include “past performance doesn’t guarantee future results.”  Another thing I have said is I’ll stick with my principles of financial planning (which you can read again here) until the current landscape of investing changes.  Well, in my opinion, the landscape has changed…somewhat.  We have been at historically low interest rates for years and that has quickly come to an end. And while the raising of rates due to inflation is the largest culprit of this down market, it does present better yields in the bond space as well as cash accounts.  All of my retirees have had a couple years of income moved to cash to not only take advantage of higher interest and stability, but to also allow time for the portfolio to recover. My hope is that it also brings peace of mind that income is covered and not subject to the current losses you see on your statements.  I’ve significantly reduced any exposure to international investments as many of those countries are experiencing even worse inflation than we are. 

History tells us that we should see a bounce back in the market next year.  Since 1980, every negative year has been followed by a positive return except for the tech bubble that lasted from 2000-2002.  Again, this year has shown history is not always guaranteed which is why the move to cash for some of you.  Many of you have asked what needs to change to get this market back under control.  I don’t want to be too simplistic but I’ll be simplistic…inflation.  When and if they can figure out a way to get inflation under control, the rate hikes will cease, and the markets can feel better again.  When will that happen?  So far the Fed and Administration has shown zero ability to get it done so I don’t know.  Sorry, Jerome, your “transitory inflation” prediction was one of the worst calls ever made.

In my announcement letter when Birds Eye was created, I committed to you that I will never stop learning and educating myself on the industry as it evolves.  It’s a complicated industry with many different ways to “advise.”  There is an endless amount of platforms through which I can provide planning and investment services for you.  The majority of you reading this are with SEI and have been for a long time.  I have personally worked with them for over a decade.  To be very straight forward with you, I have been extremely unhappy with the level of service they have provided post-pandemic, which in turn affects you.  I have communicated that to them and am always on the lookout for other options.  I am fully committed, as I always have been, to providing you the best platform, with the best technology, at the lowest cost.  If I find something better that I believe is better not only now, but for the long term, I will bring that option to you.

The federal government continues to work on new rules for the SEC to enforce.  Recently, Regulation BI was implemented.  While intended as a protection regulation for clients, I feel it’s just additional language and paperwork so corporations can cover their own.  It reminds me a lot of all the new rules put in place in the mortgage industry after the housing collapse.  Essentially it’s just more paperwork.  There are many different models in this complicated industry, so I continuously evaluate what model best fits your needs.  When I think about the proper business model, this year is a perfect example of needing to be in a business model and platform that are extremely nimble.  Trades need to be executed quickly, model portfolios need to be moved at scale, rebalancing needs to be autonomous and tax loss harvesting needs to be intuitive and easy to identify.  As I continue to evaluate these things, as always, I will keep you informed of what I see.  Just remember, all the research I do is to ensure I’m providing you the best there is to offer.

Ok, let’s talk about some good news!  After the Pandemic Zoom Era, I’ve truly enjoyed being back on the road and seeing you in person.  Zoom is certainly a great tool that we continue to use but being face to face is by far my favorite thing about our business.  The 2nd annual golf outing for my friend BJ Thomas was extremely successful and looks like it will continue to grow every year.  I’m so thankful to those of you that either donated or played in the event. 

I said at the outset of Birds Eye that communication was of paramount importance to me in order to keep you informed and engaged.  I’ve written 11 blogs this year and I hope you have also enjoyed the Video of the Month and Monthly Market Insights that go out from my website.  If there is any other type of content that you would like to see go out, please let me know. 

At the end of last year I announced that Brendan Sheehan was joining Birds Eye in an advisor capacity and also brought over 30 years of tax preparation experience.  I’m happy to announce that Brendan has successfully completed his series 7 and 66 exams and is a fully licensed financial advisor.  He has been a valuable resource to me, and in turn you the client, when it comes to decisions and how they will impact year-end taxes for you. I need to thank Judy DeJohn.  Judy is the backbone of our operation and customer support systems.  She is unbelievably dedicated and reliable to you and to Birds Eye.  This company does not run like it does without her.   Lastly, I need to thank all of you.  Birds Eye doesn’t exist without the trust you put in me and the team to manage your financial plan.  I truly believe we are the most dedicated at what we do.  Any feedback, both good and bad, is always welcome.  I’m here to serve you. 

Finally, I know this was long.  If you made it this far…thank you.  I am so happy to have something I call my own and consider you family.  You are going to see more blogs than normal coming out over the next two months in order to cover more specific market issues as well as year-end planning.  For now I’m sure you’re sick of reading.