Heading into 2023, the Investment Advisory Committee believes we are beginning to return to a more historically normal, rational economic environment.
The Committee has identified four key themes for 2023 and the years ahead:
1. Fundamentals Matter Again:
From 2009 to 2021, expansive government and monetary policies kept interest rates and inflation near record lows.
This environment favored US and growth stocks, whose stock prices are driven primarily by future growth prospects, as opposed to things like profitability and earnings.
The unwinding of these accommodative policies is leading us back to an environment where strong company fundamentals will likely again be vital when building investment portfolios.
2. Dividends Back in Focus:
Dividends represented a historically small amount (16%) of the S&P 500’s return during the 2010’s and early 2020’s.
Going back to 1926, dividends have contributed 38% of the market’s annualized return.
As we return to a more normalized environment, we believe dividends will likely become a larger portion of total return.
3. “Income” is Back in Fixed Income:
The rise of inflation was a key catalyst for pushing interest rates back to historical levels.
While difficult in some ways, the new interest rate environment means investors can likely rely on bonds again for income.
4. Asset Allocation Works Again:
In 2022, value stocks performed better than growth stocks and international stocks beat US stocks. This was in contrast to the past decade where returns have been concentrated primarily in US Growth stocks.
We believe the shifting environment could result in continued normalization, benefitting diversified portfolios.
For the first time in over a decade, bonds will likely play a meaningful role in portfolio composition.
Source: Morningstar
The future is impossible to predict, and nobody has a crystal ball. However, we believe that the four themes listed above will likely have a major impact on investor outcomes over the next year and beyond.
If you would like to talk through how these themes may impact your portfolio, please give us a call.
About the Author
Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.
Working with a Registered Investment Advisor (RIA) is desirable for high-net-worth individuals, families, and institutions for the personal, unbiased, and tailored advice to their unique financial situation. They have a fiduciary duty to act in your best interest while providing comprehensive financial services to meet your goals.
What is an RIA?
A Registered Investment Advisor is a firm registered with the Securities and Exchange Commission (SEC) that provides clients with financial advice. A team of advisors will often employ their expertise for customized guidance with the freedom to choose from a wide range of investment options for tailored advice for you.
What is the benefit of working with a Registered Investment Advisor?
A legal obligation to act in your best interest
The fiduciary standard of an RIA has a “fundamental obligation” to work in the best interests of its advisory clients. Recommendations will be made in good faith, based on your needs, and allow a direct line of communication if there is a need for clarification or change.
Providing more than just investment advice
Financial professional teams within an RIA firm are often skilled in disciplines beyond just portfolio management. They include retirement, estate, charitable legacy, tax, insurance, education planning for you and your family, and corporate services, including employee benefits. These teams will work hand-in-hand with an established financial network to develop investment strategies considering tailored solutions for your unique financial situation.
Transparent & available public records
Each RIA must file and publicly post a Form ADV that offers a comprehensive view of the organization. A Form ADV offers objective and transparent information, including conflicts of interests, compensation, disciplinary filings, education, and the firm’s key personnel.
Straightforward fee-based compensation
Many RIA’s offer financial advice and planning for a fee based on a percentage of your assets under management. This service creates a mutual benefit of a transparent fee structure that aligns the clients’ best interests with those of the RIA.
Professional Education
Many wealth management teams will usually include highly experienced financial professionals with prestigious designations. These teams often bolster professional training and certifications such as the Certified Financial Planner® (CFP®) designation, Accredited Asset Management Specialists® (AAMS®), Certified Public Accountant (CPA) or Accredited Investment Fiduciary® (AIF®) and commit themselves to continuous education on your behalf.
Consider a Registered Investment Advisor at Confluence Financial Partners
Simple, straightforward, and non-biased assistance with your comprehensive financial plan aligns with the priorities of an RIA. If you are looking for wealth management advice at a concierge level of service, Confluence Financial Partners, may be the team of financial professionals for you.
Please contact a member of the Kimmich Team if you’re interested in having a discussion.
About the Author
Jackson Elizondo is dedicated to making a positive impact in his community, a commitment that led him to a career in wealth management.
In late December, a $1.7T omnibus spending package was passed in Congress and subsequently signed into law by President Biden. This bill included some significant updates to the landmark 2019 SECURE Act, such that this portion of the legislation is being referred to as SECURE Act 2.0.
The legislation is far-reaching and offers several enhancements intended to strengthen American’s retirement and financial readiness.
While there are many changes that impact personal savers, I’d like to focus on one change that will have a significant impact on 401(k) plans, and the companies that sponsor retirement plans.
Automatic Enrollment
The new legislation requires businesses creating new 401(k) and 403(b) plans beginning in 2025, to automatically enroll eligible employees, starting at a contribution rate of at least 3%, up to 10% of employee compensation.
Contribution rates must increase by 1% each year until at least 10% is reached, but not more than 15%. Employees have the option of declining to participate or adjusting their personal savings rate.
Why is this impactful?
Roughly 25% of working adults have no retirement savings, and fewer than 4 in 10 believe their retirement savings are on track, according to the Federal Reserve’s Report on the Economic Well-Being of U.S. Households in 2019.
Proponents are hopeful that the provision will increase 401(k) participation rates and raise the amount workers save for retirement.
Signing up for a 401(k) is simple – filling out a form isn’t a difficult task, but research has shown that workers need a nudge. As the data have repeatedly shown, auto enrollment is indeed that nudge.
According to a Vanguard Research study, among newly hired employees, participation rates were at 91% under auto enrollment, versus 28% under voluntary enrollment.
The future impact of Automatic Enrollment can be significant. Employees benefit from these automated plan design options. Employers benefit by having engaged employees that are financially fit.
If you have questions about how this plan design enhancement could affect your retirement program, please call (412)815-4721 to speak with our Retirement Plan Services team today.
See below for additional key provisions in SECURE Act 2.0 for employers:
Managing your financial affairs and planning for retirement can be daunting no matter who you are or what your situation is. If you’re like most people, your mind has 60,000-80,000 thoughts per day that could range from paying off debt or planning a vacation to of course… what am I going to have for dinner tonight. The financial aspects of your life such as budgeting, saving, and planning for retirement often get pushed to the side in favor of the thoughts that have more of an immediate impact on your daily life. This is completely normal, but a major mistake that people of all ages make. The earlier you begin to get your financial affairs in order, the easier it will be down the road. Your older self will be thanking your younger self one day!
In our opinion, there are three fundamental reasons when it might be time to talk with a financial planner. Notice, we said the word “might”, this means that if you have had any of the following three thoughts or concerns you should at the minimum have a phone conversation or meeting with a planner. It’s important to determine if it is the right fit before you jump in with both feet.
You need a basic roadmap to achieve your short, intermediate, and long-term goals.
At a high level, the financial planning process consists of helping you determine your goals, develop a plan, and invest in a way that will meet those goals. Although investments are the primary focus of most financial planners, that is not the only service offered. Through the financial planning process, you will be able to tighten up your budgeting/cash flow, plan for major life events such as having children or purchasing a new home, and put yourself in a position to meet your retirement goals. A financial planner can take all of your information and talk with you about ways to meet those goals.
You’re not a “money or numbers person”.
Not everyone understands finance or enjoys following the S&P 500 and that is perfectly fine! That’s what financial planners are here for. There is a reason that they chose the profession they did. Just as some people want help in managing their finances, a financial planner looks to a doctor for medical advice. Having someone else help manage your finances can allow you to spend more time doing what you love.
You have a handle on your finances, but need a non-emotional third party.
There’s no question about it – investing and financial planning is emotional! Wouldn’t it be nice to have an unrelated party who has your best interest at heart available to you as a sounding board while you go through major life events? Want that shiny new car? Great, it can be helpful to get a neutral opinion from your financial planner. In addition, studies by DALBAR have consistently shown that the average equity investor receives a much lower return than what the actual equity market return was for the same time period. Why is that? Emotions. The individual investor often makes emotional decisions while investing that on average do not result in the best outcome.
At this point of the article, you may have already decided that you want to speak with a financial planner. Then, thought number 60,001 comes into your head… “What do I even ask a planner when I have a conversation?”. This is another potential roadblock on the path to improve your financial life. Please see below for some helpful tips when talking with a prospective advisor.
A financial relationship is based around trust and feeling comfortable with the other party. When you walk out of each meeting with a financial professional you want to have the feeling of confidence that they are putting you and your family’s needs first.
There are benefits to receiving professional advice, but choosing someone to work with can be difficult and we understand that. Here at Confluence Financial Partners, you will receive professional advice that is customized for your financial goals.
Gregory developed a passion for the financial services industry early in life, drawn to the meaningful impact investing and thoughtful financial planning can have on people’s lives.
