Gravity of Timing

Merry Christmas to you all!

As we all wind down another year, our wish for you and yours is a very blessed Christmas and a safe and Happy New Year! This year has been challenging in more ways than one, but as we focus on the true meaning of Christmas, we have so much to be thankful for and find so much joy at this time of the year. May we remember to keep this joy with us each and every day in the year ahead! As has been our tradition in the past, we are donating $1,500.00 this year to the Angel Tree Christmas program on behalf of you, our clients. This charity provides Christmas gifts to children that have parents that are in prison during the holidays and serve their families year-round.

Please Note-Holiday Office Hours and Year-End Reminders:

Our office will be closed this Friday, December 22^nd and Monday, December 25^th for Christmas. The US Financial markets will be closed on Monday as well. REMEMBER: Since the 25^th is on a holiday this month, the monthly distributions from AXOS Advisor Services accounts will not be processed until Tuesday, December 26^th.

Also, our office will be closed on Friday, December 29^th as well as Monday, January 1^st for the New Year’s Holiday. We will be back and open as usual to kick off the New Year on Tuesday, January 2^nd.  Have a great holiday season!  We are looking forward to starting 2024 with renewed optimism and enthusiasm!

Gravity of Timing

• Time’s intricate dance in investors’ finance lives mirrors the natural faster clock of GPS satellites, profoundly influencing investment outcomes across different market periods.
• Time periods greatly impact investor long term results, such as when they start investing, retire, etc.
• The Federal Reserve’s decisions act as a powerful conductor of market rhythms, with recent surprising language implying steadied rates and even potential cuts indicating a dynamic, unpredictable financial landscape.
• Our ‘ripple economy’ theory, born from the pandemic’s impacts, predicts fluctuating mini booms and busts, necessitating a cautious, adaptable approach in portfolio management.
• Embracing the ebb and flow of financial times, we aim to navigate through varying market conditions, from challenging to booming eras, protecting our clients’ long-term financial goals and planning success.

The Dance of Time and Investments

Time, a captivating and elusive concept, plays a starring role in our financial narratives. Consider the GPS satellites orbiting Earth: their clocks must be adjusted to tick slower, a quirk of relativity and gravity’s lesser pull. Time for satellites is actually moving faster relative to that on Earth. This subtle acceleration in time and lessened gravitational tug mirrors the nuanced and significant impact of timing in the investment world and its relativity specific to the individual investor. When did the individual start saving? Enter retirement? How investment classes performed in general during those times greatly impacted the outcome of their financial picture.

When embarking on the investment journey, time weaves its influence into every decision. Young investors often gravitate toward riskier assets like equities, because they should have more time to not be as concerned with increased volatility. As time marches on, a shift towards the tranquil shores of safer havens like bonds is common, and one shift that has fared poorly over the last few years, giving treasuries their longest losing streak. But here’s the twist: it’s not always what you invest in, but when. The same investment portfolio can sing a different tune depending on the market’s rhythm. Imagine a portfolio from 1982 to 2000 compared to the same steps taken from 2000 to 2018. An investor can follow an identical path but in a different generation with dramatically different results.

Calculated by Of Dollars and Data: https://ofdollarsanddata.com/us-stock-bond-calculator/

We chose consecutive 18-year periods above to showcase this divergence in average annual returns. Investors in the vibrant 1980s and 1990s enjoyed a relatively smooth glide, unlike those who later faced the tumultuous beats of the dot-com bubble and the 2008 financial crisis. The 1960s & 70s were mired with double-digit inflation, pirating markets, and sky-high interest rates. Even though investors in the 80s and 90s greatly benefited from relatively high rates of returns, it was still marked by events like Black Monday’s sharp drop, when the markets fell by more than 20% in a single day, as well as the Asian currency crisis. Overall, that investor had the easiest path to achieving their financial plan based on averages, doing nothing different than being in the right period of time.

We illustrate this to help explain our belief that setting a fixed holding for investors across any period, which is considered “passive” investing, can also be a risky venture if time isn’t taken into perspective. Time is relative, especially in investing. What if we’re in a 1960s and 70s environment where inflation roars back? What if the rate of returns sees lower single digits for the years ahead? Today, the market believes that the Fed will cut rates next year, which we agree with. But then what? If met with a crisis, the Fed may drop back to zero, and we’ll find ourselves in another predicament.

The Fed’s Language

In the realm of finance, the Federal Reserve can be imagined as a maestro, with their words and actions setting the market’s tempo and actions able to accelerate (or decelerate) an entire economy. Their recent decision to hold rates steady, even hinting at possible cuts next year, was a notable change from their previous, more restrictive stance. Barely a month ago, the Fed was adamant their restrictive policy would remain intact and rate cuts were not even on their mind. This harsh pivot, from only a month ago, echoes past periods of uncertainty, reminiscent of 2007 or the pandemic’s onset. Although the Fed only made verbal indications, the announcement on Wednesday sparked a symphony of rallies across stocks, bonds, and commodities, and the 10-year treasury yield descended from its recent peak. We believe nothing has changed and continue to see concerns, especially if rate cuts become certain next year.

Contrary to the markets jubilee, history teaches us that rate cuts often introduce a dynamic, sometimes chaotic, rhythm into the markets. While we anticipate future cuts, the market’s response to these movements is a complex dance, filled with potential reversals and renewed bouts of inflation, much like the fluctuating tempos of the 1960s through the 1980s. This last week’s pricing changes from the Fed’s announcement shows that inflation is believed to be beaten with no casualties. All smooth sailing ahead, right? As a reminder, the Fed first cut rates in the second half of 2007. The markets initially reacted happily then and didn’t show concern for nearly a year.

Riding the Waves of the Ripple Economy

We remain extremely cautious for clients, across all risk levels, while employing systems that will help us manage portfolios for any environment that may lie ahead. While we can’t predict the multi-decade returns and continue to rely on averages, we do see continuing “ripples” as highly likely for the foreseeable years ahead. Our concept of the “ripple economy,” inspired by the pandemic’s chaotic impacts, suggests a series of mini booms and busts, akin to waves in an ocean stirred by a distant storm. The pandemic has skewed economic data and consumer behavior, creating ripples that now shape a fragile yet complacent market landscape. Signs like rising corporate bankruptcy filings along with other economic indicators underscore this volatility.

In response to economic indicators that continue flashing warning signs, we remain cautious, moderating the risk across all portfolios at present. Utilizing a proprietary system and adjusted portfolio models/allocations, which we’ll delve deeper into with clients personally, we hope to navigate these fluctuating tides moving forward. Whether we’re facing the headwinds of a challenging 1960s market or riding the tailwinds of a booming 1990s, our goal remains steadfast: to try and harmonize our clients’ portfolios with the rhythm of the times, helping to provide for their long-term financial plan’s success. In the grand waltz of investing, where time plays the lead, we aim to keep in step, turning the complexities of timing into a personal and unique view of what our desire for our clients is: understanding and ultimately helping them achieve their personal financial goals in the decades ahead.  After all, what’s more important to you financially other than the success of your long-term plan regardless of market conditions. We’re here to assist in not only monitoring that goal but helping achieve it as well.

We appreciate your continued confidence in allowing us to serve you and look forward to serving you in the decades ahead. We are excited for the beginning another new year and being here to assist in meeting new challenges that may lie ahead.

God Bless,

Your TEAM at F.I.G. Financial Advisory Services, Inc.

This update expresses the views of the author(s) as of the date indicated and such views are subject to change without notice. F.I.G. Financial Advisory Services, Inc. (F.I.G.) has no duty or obligation to update the information contained herein. Further, no representation has been made, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss. This information is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services or an offer to sell or solicitation to buy any securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. F.I.G. believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. F.I.G. made attempts to show sources and links to that data, when possible. However, F.I.G. cannot guarantee or be held liable when accessing those links, as it is not the property of or maintained by the author(s). This update, including the information contained herein, may not be copied, reproduced, republished, or posted in whole or in part, in any form without the prior written consent of F.I.G.