Category: Blog

During his inauguration speech last week, President Trump said, “… the Golden Age of America begins right now…” A pretty optimistic tone, but then again maybe not surprising since he’s likely feeling pretty golden after the year he had. 

I wouldn’t mind seeing the Golden Age of America. Politics aside, I bet a lot of us would like to see that. 

The question is, what would need to happen for us to experience that? Since I’m not a political guy, just a financial one, I’ll stay in my lane and explore what we’d need to see for an Economic Golden Age.

If we look backwards at previous golden ages in our history, the time period closest was the 10-15 years after WWII. We defeated the enemy, came back home to build lives and families, and built an incredible economy along the way.

The growth of our economy (GDP) was around 4% back then (it is currently averaging close to 2%). Inflation was low and prices were stable. Technological advancements, like the mass production of automobiles and other machines made us into the leading industrial powerhouse of the world. Increased wages were helping everyone raise their standard of living, and this contributed to the rise of the middle class as more families were able to afford homes, cars and education. 

We’ll need to see something similar for the next Golden Age. A tall order for the Golden President. Here’s our thoughts on a few specific areas:

Golden Stability – To see the Golden Age come to fruition, Trump will need to keep prices stable. High inflation, like we’ve seen the last few years, erodes American’s purchasing power and makes us feel poorer. One of Trump’s main talking points during the campaign was aimed at reducing high inflation. In his few days in office he’s signed executive orders for all departments to work towards lowering costs for all consumers. That’s a nice gesture, but those departments don’t have much control over prices. 

Economists have warned tariffs could be inflationary and will raise prices. It will be difficult to both impose tariffs on imported goods, like Trump is planning to do, and lower costs for the consumer. There are other benefits of tariffs; like collecting additional taxes and targeting a particular country such as China, but the side effect may be inflationary. 

One thing Trump is hanging his hat on to keep prices low is bringing down the cost of oil and gas. If he is successful and drops prices, that could help offset the inflationary pressures of the tariffs he plans to impose. All in all, I’m skeptical we can achieve this Golden Stability.

Golden Growth – The Golden Age would also need to see some Golden Growth. One area that’s helped our growth is government spending. Every dollar the government spends in the economy contributes to growth. If you take away some of this govt. spending you take away some of the growth in the economy. Unfortunately, we’ve been spending more than we make and deficit spending has gotten out of control. We make $5 Trillion per year in revenue as a country but spend $7 Trillion. That has ballooned our nation’s debt up to $36.4 Trillion today, according to the USDebtClock.org. The answer of course is to reduce government spending, but like I said, that will limit the growth of the economy.  

Trump signed an executive order to create the Department of Government Efficiency (DOGE) to make these cuts. The cuts they impose will need to be significant in order to make a dent in the deficit. Other administrations have tried this. I remember being excited about how the Simpson-Boles committee was suggesting ways to balance the budget for Obama, but it never materialized. The cuts DOGE needs to make may be unpleasant and will definitely slow growth, but if we don’t take our medicine now, the problem will be worse in the future. I’m skeptical Trump can reduce government spending and increase growth significantly…without some kind of ace in the hole. 

Golden Innovation – This is the ace in the hole. The only way a Golden Age happens is if innovation and technological advancements bring about new productivity and industries. Just like the innovations of electricity, steel, and assembly lines helped bring about the boom in manufacturing in the 50s, we need something similar to bring about another boom. 

What’s fascinating is the new advancements in artificial intelligence (AI) could be the ace in the hole we’re looking for. AI has a potential to change a lot about how we do things in the future. I’ve been slow to believe this, but after seeing the tens of billions of dollars companies are spending on AI infrastructure the last few years, I believe! Meta announced just last week they plan to spend $65 Billion on AI related costs in 2025. The dollars are staggering. 

Here’s a list of what could change as a result of AI:

1. Innovation across industries including health care, autonomous driving and financial technology.

2. Productivity increases in manufacturing, agriculture and customer service.

3. Better Predictions that help improved decision making.

4. New Industries like data science, AI development, and robotic maintenance will help replace jobs that will be automated.

5. Revitalizing Education could reduce the cost of education.

6. More use cases we haven’t even thought of yet…

The bottom line is I don’t know if we will see an Economic Golden Age the next four years, but there is one coming, and we don’t want to miss out in our portfolios.

We’ve been investing in some of the companies at the forefront of this AI race in our Growth Stock Portfolio. Some of them have seen tremendous growth due to the hope of the AI boom. However, as I write this, some of the best growth names of the last several years, and the stock market in general, are down big today. A new competitor in China, DeepSeek, has claimed they have found a new and less expensive way to develop AI.

Some are saying the AI bubble just burst, others are saying to buy now because the AI opportunity is still in the early stages. Whose right?  I’m not sure. It just seems to be another example that what goes up foreverdoes eventually come down a little… right before it goes back up again. We largely stay invested through all the drama. 

We’ve seen two good years in a row for stocks fueled largely by the hope of AI. Time will tell if we get a chance for a 3-peat, like my LEAST favorite team in football, the Kansas City Chiefs. Whether this AI shift and potential Golden Age happens over the next 4 years or 40, we need to be invested in it. 

SMB Financial News

We grew yet again this last year! We now manage approximately $175 Million across our five advisors. With that growth comes additional work we need help with. We are once again looking to hire another admin assistant and future financial advisor to help us with these extra duties.

As I mentioned in our last email, Jeremiah and his wife Alicia are expecting yet another child to add to the brood on the right. He will be out of the office for several weeks in March after the baby is born and I will be stepping into the operations role while he’s away.

No exciting news for me and my family, other than we got to visit the Florida Keys over the New Year. I was born in the Keys and spent the first 9 years of my life down there. It was an incredible trip seeing old familiar sites (like the Tamarind tree I used to climb after baseball practice 35 years ago!), getting out on the water to snorkel, and visiting family still down there.

It was a great vacation because it helped me rest up for another year of serving our great clients. We are so grateful for the incredible relationship we have with  all of you. Please don’t hesitate to contact us if you need anything. We hope to  talk with everyone soon.

Thanks for reading,

Tim Porter, CFP^® 

The time has come to make a change. The time has come to turn the page. The time has come to face the music. The time has come to step up. The time has come to take a stand. 

Am I referring to politics? Ha! Not a chance. You can decide if the time has come for A New Way Forward or if the time has come to Make America Great Again.

The time has come… to sell some stocks. Or at least evaluate risk in the accounts.

The S&P 500 is at all time highs while we’re simultaneously facing several events that could have implications on our investments: the closely contested presidential election, wars in several places, and the Fed’s lowering of interest rates while trying not to stoke inflation.

We’ve been holding off on selling much the last few years, and we’re glad we did. The economy’s been able to weather high interest rates, profits have grown, jobs have been created, inflation is back in line, rates are dropping, and stocks have been rising, which has benefited everyone invested in them.

(Here’s a chart from Macrotrends.net showing stock market returns over the last 10 years. Not a bad run.)

But the time has come to sell some of those stocks.

Now, I’m not referring to SELL SELL SELL everything in the accounts like you’ve seen in movies. I’m thinking more like TRIM TRIM TRIM or SNIP SNIP SNIP.

Growth Stock Portfolio

We’ve already started trimming in our growth stock portfolio, selling Nvidia, which has grown to be an outsized position. We’ve been having conversations lately with clients about selling some of this stock and moving to a money market fund while waiting to invest until some event pushes the stock market back down again. We also want to “take out the trash” and sell some of the disappointing stocks like Zoom and Docusign.

Moderate Risk Funds Portfolio

In our moderate risk portfolio we’ve already been getting more conservative by selling normal stock funds and exchanging them with buffered funds that limit downside risk. These funds still capture upside when the market does well like it has the last few years. The trimming also gives us an opportunity to “take out the trash” in this portfolio and sell some of our underperforming funds.

The time has come to get more conservative and SELL. After the next dramatic headline, the time will come to BUY stocks once again. We’ll keep you posted when that happens. 

Exciting News

We had some very exciting news recently! The newest member of our team, Lindsey Cason, expanded her family August 31st and had her first baby, Lydia Cason. Mom and baby are doing well and Lindsey will be back in the office towards the end of the year.

While Lindsey and Nolan are trying to figure out how to care for their first baby, Jeremiah and his wife, Alicia, are having their fifth. Yes, I said FIFTH! Please pray for them! Due date is in March. 

It’s getting crazy around here and SMB may need to expand and start a daycare in one of our spare offices if this keeps up. 

I’m the odd one out. My wife and I are not expecting, but it feels like just the other day we were. Our 2 year old, Charlie, is now the mascot of our family.

Until next time!

Thanks for reading,

Tim Porter, CFP^®

I can’t remember a time when I’ve seen so many pictures of an ear in the news. The term play it by ear is not usually meant to be literally about an ear, but I have a feeling that the Trump campaign will be doing just that, playing it by ear, until the election in November after last weekend’s failed assassination attempt. 

The horrific event that nearly killed the former president, but did end up killing two others (including the shooter), could end up being a boost to Trump’s poll numbers according to the NY Post. To be sure, we will continue to see Trump’s campaign play, and then replay, the video of Trump taking it in the ear. 

The term play it by ear actually means to do something without a detailed formula, or to wait and see before making a decision. Some overly cautious people may recoil at the idea of playing it by ear because it sounds reckless or irresponsible to them. But it’s used quite a bit in all kinds of areas:

Buying a home – Playing it by ear can be advantageous to buyers as they wait for the right price, the right rate, or the right home to come along before making a decision.

Interest rates – Jerome Powell and the Federal Reserve are playing it by ear as they weigh the advantages and disadvantages of cutting rates. A cut in September is all but guaranteed according to the experts, but future cuts are not as certain. 

Politics – Democrats are playing it by ear as they weigh Biden’s chances of beating Trump in November. Rep. Adam Schiff is apparently done playing it by ear as he’s now calling for Biden to be replaced. 

Playing it by ear is also used in financial planning and investing:

Planning for Retirement – Playing it by ear means having adaptable expectations in or near retirement because of unpredictable circumstances. While we try to predict what our clients will have to live on in retirement (see example below), sometimes they have to play it by ear because they won’t know the exact dollar amount they’ll have to live on until ~90 days before retirement.

Investing in Stocks – Playing it by ear means waiting for stocks/funds to drop before buying into them and playing it by ear also means waiting to let the stocks/funds run up before trimming them. After playing it by ear the last few years we’ve trimmed and are trimming positions for the eventual pullback.

Taxes – Playing it by ear means being willing to adjust your taxable income in retirement from year to year because of future tax changes. For example, the individual income tax cuts from the Tax Cuts and Jobs Act (TCJA) of 2017 are set to expire after 2025. 

While the stock market has been great in 2023 and 2024, we are well aware of the uncertainty that awaits us later this year with interest rates, an election, and geopolitical tensions.

While we wait to see what the uncertainty brings us, we know that uncertainty can bring opportunity. We’ve been trimming positions in client accounts in anticipation of the coming pullback and will look to reinvest at that time. I can’t predict the timing of the pullback, just that we will see another one in the future and we want to have some assets set aside for that day. 

I guess you could say we’re playing it by ear. 

Kaiser Permanente Retirement Seminars

It appears the Kaiser Permanente presentations are back on again! We’re preparing to  team up again with KaiPerm Credit Union to begin offering retirement seminars in two KP locations on either side of Portland. More details will be coming shortly but the dates look to be about a month or two out. 

We’re excited to crank up the 7 Deadly Sins of Retirement presentation again and to help KP employees make good decisions with their finances. Hope to see some of you there!

Thanks for reading,

Tim Porter, CFP^®

How much will you need to retire? What’s the magic number you’ll need to save to consider retiring? 

This is a big question for half of my clients who are still working. This number can be motivating, or for most Americans who are way behind, it can be depressing.

So how does one figure out what their magic number is? You could always google it.

If you do that you’ll come to this figure – $1.46 Million.  

Northwestern Mutual interviewed 4500 people in January this year and that was the average dollar amount people thought they needed to save to retire.

After thinking about it, honestly, it’s not a terrible number.

As a Financial Planner, I’m supposed to say “rules of thumb” are garbage for financial planning and you should have a specific, custom, personalized, tailored, complicated, EXPENSIVE… financial plan done with an expert like myself.

We’re happy to do that for people, but most don’t need a hundred-page financial plan. They just need something simple to shoot at. After all simplicity is the ultimate sophistication (Da Vinci) and everything should be as simple as possible, but not simpler (Einstein).

So, if you’re near retirement and just looking for a number, you’re good to go. Go figure out how to save $1.46 Million by the time you’re in your mid-sixties.

For the rest of you who want a bit more detail, let’s look at some rules of thumb to figure out your magic number. 

(Below is not my child. I tried to get my almost 2-year-old, Charlie, to give a thumbs up for a picture, but I guess he’s not a thumbs up kind of guy yet.)

Current Income

What is your desired income in retirement? 

Rule of thumb #1 – Use your current income. 

No need to think long and hard about your budget in retirement, just use your current income. You’ve lived on it this long, it will probably be more than enough when you retire. Typically you need less income when you retire since you wouldn’t be saving or spending as much on gas or work expenses, but to make life easy, just use your current income.

Retirement Income Sources (social security, rental income, pensions…)

How much will you get from Social Security? 

Rule of thumb #2 – Use the average SS payout of $20,000/yr. 

If you don’t know, or don’t want to login to SSA.gov to find out your specific payout, then use the average payout. If you’re married, double it. That will get you started on what you’ll have coming in.

Add in any pensions (this is important for my Kaiser Permanente clients), rental income, part-time work, or other retirement income you’ll have to get your a total retirement income. 

Investment Income

How much income will you need to generate from your savings/investments? 

Rule of thumb #3 – Subtract retirement income from current income.

Current Income – Retirement Income = Needed Investment Income

Example: If you currently live on $100,000 in income and you’ll have $20,000 from social security each year then you’ll need to generate $80,000 in investment income to cover your needs.

Multiply by 20

How much savings will you need to get your investment income?

Rule of thumb #4 – Mulitply your investment income by 20 to get your magic number.

Example from above: $80,000 x 20 = $1,600,000

Pretty close to the number you would have gotten if you googled it! 

The Bottom Line

The bottom line is there is no magic to THE number. We have retired clients with much less than the magic number who are living a fantastic life in retirement. We also have clients with many times this magic number who are worried about how much they have. 

The number is always changing, it’s always elusive, and it seems to always be more than you will have. The best thing I have seen people do in 19 years is to pick a realistic number and figure out how much you need to work and save to get there. Then, when you get to retirement age, and the magic number is assuredly different than what you thought it was going to be, figure out how to live on the income it generates.

The average American has $88,000 saved for retirement. It seems counterintuitive to stress about whether your number is $1.46 or $1.56 Million. 

Use some rules of thumb to figure out how much you’ll need, or call us and let us do the work for you.

Our specialty is helping simplify the financial/retirement plan down to one page, FOR FREE! Click below to see an example of our Can-I-Retire Spreadsheet. It’s how we keep score of retirement for clients and help them answer the question, “Can I retire?”

Let us know if we can create one of these for you.

Thanks for reading,

Tim Porter, CFP^®

One year ago I wrote a letter titled The Little Economy That Couldn’t because of the widespread expectation the economy was slipping into recession. I quoted a Forbes article stating we were facing, “…the most anticipated recession of all time!” 

Looking back on the year, it reminds me of the “expectation vs. reality” memes showing how ridiculous our expectations can be compared to reality.

In response to the pessimism last year, I recommended basically doing nothing and making no changes to our investments. That advice was not just a one-time thing, it’s a rule-of-thumb for us. We make no large changes to portfolios because of wide spread expectations or expert predictions. 

Why? Because you never know. You never know what the year will be like. You never know if a disaster awaits us or what blessing a technological advance could bring (think AI). You never know if our government will make decisions that will help or hurt the economy. You never know who will be President. You never know if the world will shut down because of a pandemic. You never know if interest rates will go up or down. You never know if taxes will go up or down. You never know if the stock market will go up or down. You never know if the economy will grow or if we will sink into a recession. You just never know!

We never know what will happen, but we DO KNOW that (on average) 3 out of every 4 years are good for the economy and stock market. Because of this we stay invested.

Now, I don’t usually toot our own horn, but I’m willing to make an exception this time (*toot toot*)! There was no recession last year, the stock market was up, and our accounts did well as a result. We are very thankful we don’t panic and sell all stocks based on expectations.

Our aggressive Growth Portfolio led the way thanks to computer chip company Nvidia, but most everyone invested in stocks did well last year. 

Last Call Before Rates Fall

This Christmas, my three older brothers and I went out to a restaurant in Salem and had such a good time we didn’t realize we were the last ones there. The poor hostess had to give us the, “Ok guys, the party’s over, we’re all trying to go home. Last Call!”

The experts are saying the same thing. The party’s over in Certificates of Deposit (CDs), Treasuries, and other fixed investments. It’s last call before rates fall!

Interest rates have been climbing for several years as Jerome Powell and the Federal Reserve dealt with high inflation. Now that inflation is less of a problem, it is assumed rates will begin to decrease this year. We’re already seeing that in some of the fixed investments we invest in.

The CDs that were offering approximately 5% per year are now only offering 4%. Treasuries that were getting 5% are now closer to 4%. Insurance companies that were offering 6%+ are now down in the 5% range. If the prognosticators are right and rates do fall, then those percentages are likely to keep falling. 

To keep this in perspective: a 4% CD and a 5% annuity are still relatively high compared to the last 20 years. So it’s still a good time to lock in a guaranteed rate if you have safe money you want to earn interest on, but the clock is ticking. The longer people wait, the lower the rate may be.

We’ve been locking in these high rates using CDs, Money Markets Funds, and insurance products wherever we can.

NOT Last Call for Stocks

Because rates are likely to fall this year, we are optimistic about the economy in 2024, and believe it’s NOT last call for stocks. Here’s why:

Lower rates should help the housing market. Housing will likely see increased activity after a dismal 2023. From a CNN article, home sales last year dropped to the lowest level in 28 years, since 1995! If you see a mortgage broker or realtor, you should give them a hug and tell them brighter days are ahead.

Lower rates should help development and investment. Projects that have been on-hold because of interest rate sticker shock should see some relief. Hopefully these projects may be able to move forward again. That’s good for a lot of people. From the banks that are loaning money, to the workers moving the dirt, to the companies employing the workers to build the developments. 

Lower rates should help companies invest. Companies that have been holding back on borrowing to expand and grow their business should be freed up to do so as soon as the rates allow. This will give the economy a boost from increased spending.

Lower rates should help the stock market. Financial analysts that value stocks use current interest rates in the calculations. If rates continue to fall it should make stock valuations more attractive, which should lead to higher stock prices. That’s good news for those of us that own stocks.

Finally, when discussing 2024, we must discuss the elephant (or donkey) in the room.

2020 Rematch

We watched the fireworks play out in New Hampshire and now it’s all about South Carolina. DeSantis is out and the gloves are off between Trump and Haley. Unfortunately for Haley, Trump looks to have the nomination in the bag. So, despite 70% of the public not wanting a rematch, it appears very likely that’s what we’re getting.

So the question is, will the election drama affect our portfolios?

Contrary to 49% of opinions, election years usually don’t affect portfolios much.

A recent poll was done with people owning 250k in investments or more, and Matt Sommer from MarketWatch says, “more investors say they are very concerned about the impact the 2024 presidential election will have on their portfolios (49%) than are very concerned about the impact of inflation (35%), recession (29%), or higher interest rates (27%).”

But once again, expectation is very different from reality. The stock market has shown very little difference between election years and non election years in the past 90 years. 

“Looking back at the performance of the S&P 500 from 1937 to 2022, for example, shows that the average annual return is 9.9% during presidential election years and at 12.5% during non-election years.”

So, with that in mind, we are expecting the performance of the stock market in 2024 will be based on the fundamental factors mentioned above and not just the election. Thankfully. 

20 Years and Counting

As we tell people how wonderful we are (tongue in cheek of course), SMB Financial continues to grow. We manage over $150 million in assets now! This is a big milestone and I’m incredibly proud of where we’ve come over the last twenty years. When I joined Bruce (my dad) in 2005 we managed only $14 million. 

That’s quite a bit of growth over the years thanks in a big way to Jeremiah Forrister, who has been with us now coming up on seven years. I can’t tell you how great it is to have him here. Jeremiah has streamlined operations, handled the administration, and as a Certified Financial Planner, has his own clients and investments he manages. 

With all that we needed to hire again, and did so at the beginning of the year. Lindsey Cason is from the great state of Alaska but now lives in Salem with her husband, Nolan. She taught Math and Science to middle schoolers for 8 years in the Santiam School District and recently decided she wanted to switch careers. She has now joined the world of financial planning and investing, and we’re glad she did!

She’s been studying to pass her Series 65 exam to become an Investment Advisor Representative and will eventually be helping me as a Junior Advisor within our firm. For now, you’ll be hearing her answering the phone and helping Jeremiah with the admin and operations of the business.

As for myself (Tim) and my wife, we continue to have our hands full with extracurricular activities. Between coaching wrestling, basketball, church, friends, and a toddler, we’re just trying to keep up. Fortunately, the toddler (Charlie) is keeping us entertained. His favorite animal is a cow and he loves to say, “mooooo” about fifty times a day.

The twentieth year of this business has been fun for us and profitable for clients. 

Here’s to twenty more just like it! 

Thanks for reading,

Tim Porter, CFP^®

One of my jobs as a parent is to keep the peace in my house. Now with six of us under one roof, it’s a full-time job. But with no teenagers, it’s still doable. My oldest is turning twelve this weekend though, so one year from now I’m in trouble. From what I’ve seen, managing teenage “unrest” on a daily basis looks daunting. (Future teenagers in Sunriver, OR below)

Then I remember I’ve been training for this for the last 18 years! As an advisor, and as investors, we manage unrest every day. We are constantly confronted with drama kings and queens and their headlines. My job is to keep my cool and not overreact, and help clients do the same.

Like burning the house down when a teenager makes a mess, or putting them up for adoption when there’s a disagreement, overreacting in your portfolio, and selling everything because it went down, can keep you from the long-term gains we’re all trying to realize.

Take the latest dramatic headlines of Political Unrest, Worker Unrest, and Geopolitical Unrest. How do we process all these and not overreact? A good investor (and a good parent of teenagers) would calmly take these issues one at a time:

Political Unrest: The latest government shutdown that dominated the headlines two weeks ago was avoided. However, it resulted in the Speaker of the House being ousted. Today we have a new Speaker nominated, but the unrest-creating headlines will be back shortly as the next government shutdown looms in mid-November. Will the stock market drop?

Time can help us outrun drama like this. These types of shutdowns will eventually be resolved. The last one was in 2018 and lasted 35 days. What did the stock market do? It went up, not down.

Worker Unrest: Auto workers, medical workers, and other workers are striking across the nation for better pay and benefits. Autos were already in short supply and medical staff are stretched thin. Will the economy see the effects of these disputes?

Maybe. Employees are trying to pay for increased costs at home and employers are desperately trying to keep costs down at work. Both sides cannot stay out of work for long and the disputes will likely end in compromise. The economic effects will likely be small and short-lived, despite what the news insinuates. 

Geopolitical Unrest: The terrorist attacks in Israel are being labeled Israel’s 9/11. The loss of life cannot be quantified financially. The event was and is horrific. If Iran gets pulled into the conflict it will get much worse. Meanwhile, Russia and Ukraine are still fighting and China tensions remain high with all eyes on the island of Taiwan. Should we wait to invest until after all this is over? 

How long will it take to end unrest between all nations, tribes, and tongues? I’m afraid it’s going to be a while. Tensions flare and headlines flash, sometimes pushing the stock market down, but then they fade and disappear only to be replaced by geopolitical unrest from another part of the world.

Perseverance

With so much unrest to process recently, it’s no wonder the stock market has been headed down the last few months. The S&P 500 is down about 6% since the end of July, but still up over 13% year-to-date. (See the year-to-date chart of the stock market below)

Investing, like parenting teenagers, is not for the faint of heart. We have to look into a future of what seems like never-ending unrest and find the courage to persevere. We have to manage the daily drama so we can experience long-term gains.

It’s not wrong to have strong emotions about serious events that have happened and will happen. We all have them. It’s acting and sometimes overreacting that can get you in trouble. Perseverance is what we need to regulate those strong emotions and keep us from doing things we’ll regret. 

The perseverance to stay invested despite the unrest has resulted in financial gains in the past, and I expect the same will be true in the future.

We’re still contacting clients about the move to Schwab and fixing any statement or login issues. We look forward to talking with everyone before the end of the year. Please let us know if we can do anything for you. 

Thanks for reading,

After three years of waiting and wondering about the transition from TD Ameritrade to Charles Schwab, the merger is complete, and it appeared to be No Prob. No websites crashed, no dramatic mix-ups or missing accounts, and no interruption of our important work serving our clients.

All client accounts were successfully transferred and their assets are now sitting in the eighth largest bank in the United States, Charles Schwab. Over the Labor Day weekend, $1.3 Trillion in assets and 7,000 investment firms moved in what one article is calling a “Snooze Fest.”

Why Charles Schwab and TD Ameritrade are celebrating a $1.3T snooze fest

Charles Schwab has proven themselves to be incredibly competent in the first inning of our work together with them. We’ve needed to call them several times the first week as we had questions about the new system. Even though 7,000 firms like ours moved to Schwab the the very same day, the hold times were shockingly short and we were able to find knowledgeable people to answer our questions. Another good sign for the future.

The next step in this transition is for us to get clients familiar with the new look and feel of Schwab. We’ll be getting out the call list shortly to reach out to everyone to see what questions they may have. 

Here are a few topics we’re planning to discuss:

• Online Logins – Helping everyone who wants an online login get one.
• Combining Logins – Helping combine online logins of families who’d like to see all accounts in one spot.
• Paper Statements – Helping combine paper statements so that all accounts come in one envelope every month.
• Distributions – Talking through distributions and contributions to accounts that might take an extra day or two to process. 

Please contact us if we can do something for you. We hope everyone had a great summer and we look forward to talking with you soon. 

Fourteen years ago I was dating a girl and a friend told me, “Tim, you’re peaking. Your search for a wife is over. You should put a ring on her finger before she gets away.” He was right. It was great advice, I took it, and now she’s stuck with me.

The peaking is even more obvious now!

The same advice could be given to Jerome Powell head of the Federal Reserve who is in charge of establishing interest rates. 

“J Powell, you’re peaking. You’re winning the fight against inflation. Inflation has peaked and so should rates. Stop raising interest rates before this growing economy gets away from us and we end up in a recession.” (I know, the metaphor’s kind of a stretch, but it’s the best I could do.)

Yesterday, inflation slowed again marking the 9th consecutive month of slowing, and the lowest reading in two years. Prices rose 5% from a year ago, down from 6% the month prior and peak inflation from last July is clearly visible in the chart below.

This is what the Fed has wanted to see happen since it started aggressively raising rates a year ago. To be clear, the target is 2% inflation and we’re still significantly above that. However, we’re much closer than we were last July thankfully and still trending in the right direction. This is good news because the Fed can HOPEFULLY stop raising rates now. 

So why does this matter? Inflation peaked, rates are peaking, and next stocks should peak. We want stocks to peak. (Has your cofusion peaked yet?)

Banking Crisis

One situation that tested nerves and stocks last month was a miniature banking crisis. A handful of banks got swept up in the drama as depositors have been pulling money out of their checking and savings accounts to earn more interest elsewhere. We’ve been doing this in our investment accounts as we move cash to CDs and Money Markets to benefit clients. When a significant number of people all do this at the same time it can put a strain on the banks.

Fortunately, this only affected a few institutions and no depositors were harmed during the crisis. The bank drama seems to have died down now and appears to be behind us. Warren Buffet was quoted recently that he would bet anyone $1 Million that no depositor would lose a single dollar as a result of this crisis. We agree. 

Merger

The merger between TD Ameritrade and Charles Schwab is going as planned and is now less than five months away. Schwab has set the date of September 4th, 2023 to move all clients from a TD Ameritrade account to a Schwab account. No changes will be made to your investments during the merger. 

There will be no paperwork or signatures needed to make the change. However, clients will start to receive notices of the changes from SMB and Schwab starting as early as this month. 

Again, there is nothing to fill out or sign. If a client does nothing, the account will move to Schwab and we will manage it just as we’ve always done. The biggest change will be that accounts and statements will have a TD logo on Friday, September 1, and a Schwab logo on the Tuesday after Labor Day, September 4. That’s pretty much the extent of it.

Please let us know if you have any questions or concerns about this.

We hope taxes didn’t hurt you too badly. Now that tax season is winding down we’re planning to call clients to touch base about all things financial. We look forward to talking with everyone soon.

Thanks for reading,

Thanks to Tony Robbins we all know about the power of positive thinking, but before Tony, came Watty Piper. It’s thanks to Watty 100 years ago and his Little Engine That Could that we often think optimism and positivity is what we need to be successful.  

But what about the Little Engine That Couldn’t? Did that train plagued with worry, fear, and pessimism make it over the hill? Based on the picture I found, it doesn’t look good. 

So how about the Little Economy That Couldn’t? What happens when negativity and pessimism take over? Can that derail an economy and stock market? 

Right now our economy is trying to get over the hump of a potential slow down from rising interest rates. Optimism is hard to find, the economic outlook is unclear, and the financial news is as pessimistic as ever, repeating “I think we can’t…avoid a recession, I think we can’t…avoid a recession.”

Self-fulfilling Recession

Our economy is based on consumer confidence. If people are confident they’ll earn income, they will SPEND, taking care of themselves and their families and investing in their future. This helps the overall economy grow. If they don’t have confidence, they won’t spend but will instead SAVE, just in case they lose their job. So, the fear of a recession can actually create a recession, or make a one much worse. 

Fear Turns to Hope

As of this moment, it appears a majority of people believe we will be, or are already, in a recession. A Forbes article in January said, “This is the most anticipated recession ever.” This is increasing the likelihood we’ll enter into a recession in 2023. 

This is concerning, but not surprising. This is the process during EVERY slow down. This is the process of life. Pessimism reigns until it doesn’t. Fear is a powerful feeling until it turns to hope. 

But as long-term investors, do we care?

As long-term investors, we’re less interested in the mood of the economy. We care about facts, not feelings, when we plan our investment strategy. We care about the Little Economy That Did. What did the economy DO? 

So far, the pessimistic predictions have not come true. The data is showing inflation has been coming down, consumers did not close their wallets, and earnings reports for companies have not been too bad. It turns out the economy is not as fragile as most thought. We’re once again glad we don’t make large changes based on emotion.

Emotional vs Fundamental

Emotional swings are typically short term, but fundamental moves based on inflation data, GDP, unemployment, retail sales… are longer term. We care more about the fundamentals of the economy and less about the emotions.  

This is why we try not to get overly excited when things go up, and this is why we were not overly pessimistic last year when things went down. Instead of making major moves, we tweak portfolios or simply hold steady during emotional swings. Below is an overview of some tweaks we’ve made to portfolios after a tumultuous year.

Portfolios

We have 3 main components we invest in for clients depending on risk: Guarantees, Moderate Funds, and Growth Stocks

Guarantees – These are products from banks or insurance companies that are some of the safest vehicles we invest in. We’ve seen the rates on these guarantees jump this year. We have been, and will continue to, incorporate these into portfolios as rates continue to rise.

Moderate Funds – Starting in September of last year we’ve started incorporating Buffered Funds into this portion of the portfolios. According to ETF.com this category of fund is growing quickly because they help provide downside protection and upside participation in the stock market. These are great for retirees who want less risk than a portfolio of only stocks. A few different companies offer these funds but we’ve chosen to work with First Trust, a company we know and respect.

We’re also seeing money market funds paying a more reasonable rate of interest now that rates are higher. We’ve been buying these money markets with cash that clients have on the sidelines waiting to be invested. 

Growth Stocks – These more aggressive growth stocks were hit hardest last year but have bounced significantly this year. We’ve been slow to buy additional stocks in these accounts as we wait to see if the pessimistic prognosticators are right, and the stock market drops significantly. A larger portion than usual is sitting in money market funds in these accounts as we wait. 

Schwab Transition

Finally, we have an update on a long standing merger between TD Ameritrade and Charles Schwab. This year over the Labor Day weekend, all of our TD Ameritrade accounts will be changing to Charles Schwab accounts.  

This has been in the works for two years now, and it doesn’t appear there will be anything that clients will have to do. There will be no paperwork or signatures required, just notices that will go out this summer informing everyone of the merger. More information can be found at the website welcome.Schwab.com

We are expecting Charles Schwab to be an outstanding custodian, similar to how TD Ameritrade has been. In 2010 when we started our firm we interviewed Charles Schwab to work with them, but TD Ameritrade worked a little harder to earn our business. Thirteen years later and $130 Million in more assets, we are looking forward to the larger Schwab and the greater resources they should have for a firm like ours. 

Clients shouldn’t notice much difference between TD Ameritrade and Charles Schwab. A new logo on the statement, and a different website to check balances, but other than that not much more that would affect the client experience. The bigger difference will be from our perspective as we work with a new back office to manage the day-to-day details of managing assets for clients. 

As always, we appreciate the relationships we have with our clients and encourage you to contact us if you have any questions or there’s anything we can do for you. If we don’t hear from you, we’ll be reaching out to clients again around tax time to check-in.

Thanks for reading,

Tim Porter, CFP^®

My son was up the other night worried about getting a shot. Like any 11-year-old kid, it’s an unpleasant experience that he’d rather not deal with. So we talked about the fear of the shot, which my wife thought was the worst part, followed by the reality of the shot, which is uncomfortable but not horrible, followed by the joy of being done, which is clearly the best part.

The explanation worked! He was able to get back to bed. 

The same explanation can be applied to our situation in the financial markets. This year has been marked by fear and anticipation of what will happen to the economy as they raise rates at a historic pace to slow our overheated economy. Starting now, and in 2023, the reality of the rise in rates will play out as the housing market and the stock market react to the changes in the economy. This will be followed by the joy of being done with record inflation, record interest rates increases, and the uncertainty surrounding those.

Fear

We’ve spent the entire year hashing and rehashing the reality of what will happen, and the stock market has suffered as a result. Fear is the worst part as people who pretend to be fortune tellers try and predict the future with little accuracy. We’ve been there and done this. We can check fear off the list. 

Reality

Now for the reality. The reality is interest rates have climbed dramatically. Residential mortgages are above 6%. The prime rate that banks use to lend money is at 7.5%. Credit cards are charging more. Car loan rates are up. Business loans cost more. The reality of higher rates is settling in.

In Portland, OR housing is down 1% in the last year, but down 12% since May 2022 according to Redfin. November retail sales slowed more than expected last week showing the holiday shopping season getting off to a slow start, private business activity slowed more than forecast, and as we all know, the stock market is down.

The reality is the economy is slowing down and that will cause some discomfort as companies report lower earnings and stocks bounce around as a result. BUT, the slowing is what we need for inflation to come down, and it is FINALLY coming down. December’s reading was 7.1% versus the 9.2% reading in August. This is evidence the Federal Reserve needs to stop raising rates to slow the economy, which is causing the discomfort. 

Like we told Henry, the discomfort is no fun, but it tells us we’re almost at the end of the process and the joy of getting through it is right around the corner. 

Joy

In my last letter, I wrote how stocks typically come roaring back as the economy exits a recession. This is what we invest for. The elation that comes from getting through another tough scenario usually carries the economy and the stock market up for several years, which should get us back to the highs of 2021. Then surpass the old peak to new highs. 

As usual, the time frame is unclear as we approach the new year and the new reality of the slower economy ahead. However, this was also true in 2020 as the uncertainty loomed from Covid, in 2008-9 as a financial crisis was slowing things down, and in 2001 during the tech boom and subsequent recession. The same joy that came as we got through those tough times will be the same joy that will come as we get through the challenges of inflation. That should be enough to get us to new highs. So bring on the joy!

Trades

To help us participate even more in the joy of the recovery, we still have cash on the sidelines to invest in most accounts. We made some trades in September and invested in CDs in some accounts, but haven’t invested much since then. If there is more volatility in the first part of 2023, we intend to take advantage of that and put the rest of the cash we’ve been holding back to work in companies and funds we think will take advantage of the rebound in the latter half of the year. 

End-of-Year

We’ve finished sending the required minimum distributions out for everyone over 72 and are working on “Loss Harvesting” to minimize any taxable gain in accounts. Please let us know if you have any questions about that or anything else. Jeremiah or I will be in the office most days if anyone needs anything.

Finally, years like this always leave a bitter taste in our mouths because we care deeply about our clients and we take pride in helping them avoid bad decisions that cause worry and anxiety. The decision to own stocks this year is not preventing anxiety but causing it, and we are the ones who encouraged it.

This fact is not lost on us. However, you should know we made the decision to own stocks knowing full well this can happen and HAS happened. In fact, the stock market is negative about 27% of the time, and in the last 20 years, has been negative only three years: 2018, 2008, and 2002. 

We had bitter tastes in our mouths during those years but I’ve found in my 17 years of experience, that bitterness doesn’t last forever. There are always sweet days ahead. 

This year more than ever, we thank you for being our client. 

May your Christmas and New Year’s sweeten your year.

Thanks for reading,