Beginning Well to Finish Well

by Krista Wallace, Advisor, CFP®

It’s January again, folks, and by now the would-be fitness fanatics are already realizing and (perhaps) accepting their limitations and revising their goals for the year ahead. As a recovering resolution-maker, this time of year continues to evoke feelings of hope as I reflect on what has been and move into what can (will) be.  

Your SoundView Team is full of reflection, too, and harnessing that energy by Reviving Routines, Resetting our Focus, and Reaching forward in the calendar.



REVIVING ROUTINES

“Quality is not an act, it is a habit.” - Aristotle

If you’ve been a client for at least a year, you are likely already familiar with our January “to-do” lists and are likely hearing a lot from your Support Advisors (Debbie, Sophea, and Danielle). They are hard at work processing Qualified Charitable Distributions and Required Minimum Distributions from IRA accounts. They’ve sent data-gathering forms to collect year-end information, and soon, they’ll be coordinating tax letters and forms. Although our processes have changed and expanded over the years, this time of year reinforces our value of collaboration and propels us all into a productive year.

RESETTING OUR FOCUS

“Every new beginning comes from some other beginning’s end.”
(Semisonic, ‘Closing Time’, 1998)

This is also the time of year when we tally the scores on your newly minted successes and prepare to present them during the Annual Review meeting. As an advisor, this is possibly my favorite meeting with my clients – the opportunity to refocus and clarify goals, count financial and personal successes, and overview the impact of your big-picture plan. Hearing about your daily routines, seeing your family photos, and answering your many questions (without the aid of a crystal ball) energize and invigorate our work for the year.

REACHING FORWARD

“To finish the moment, to find the journey’s end in every step of the road, to live the greatest number of good hours, is wisdom.” – Ralph Waldo Emerson

Taking a proactive approach to planning is a priority for every member of the SoundView team. Beginning well sets the stage for not only the current year’s work but also your confidence for the “what ifs” in life. We’ll focus our strategic efforts on estate planning this year and take a comprehensive look at what finishing well can really mean for you. We’ll identify life events that may have an impact on your distribution plans, explore charitable giving options, and collaborate with attorneys to revise your estate documents as needed.

A New Year, A New Calendar

by Kevin Slater, Lead Advisor, CEO, CFP®

 

Back in the old days, we kept track of important events on calendars with lovely pictures hung on our kitchen wall. When is our vacation? Don’t forget so and so’s birthday! Is there a cool picture for my birth month?

On New Year's Day, we excitedly hung up a new calendar. Are we using the one with pictures of our dream vacation or one with pictures of cats or dogs? Sometimes, just before it hit the trash (no recycling back then!), we glanced through the old calendar to see if there was anything important to remember in the new year.

Today our calendars are portable, and most of our pictures are on our phones. Yet it is as important as ever to look back and acknowledge the significant things in life.

OUR TEAM
They are phenomenal in their knowledge, experience, and commitment. Kevin Rigg, Ben, Krista, and Nichole engaged with clients and shared their wisdom. Sophea and Deb worked tirelessly to ensure decisions become realities. Nate and Lisa put our team in a position to serve clients well. Austin Boyce passed his CFP exam. Danielle joined us and hit the ground running because our team set her up for success.

OUR CLIENTS
We work with fascinating people and talk about the things that truly matter. Each has a unique story, goals, and concerns. We know we have a rare window into their lives, and we appreciate their trust, confidence, and transparency.

OUR JOINT ACCOMPLISHMENTS
We helped clients understand their resources and progress toward their goals. We identified risk exposures and how to address them. We managed portfolios for great years and for an inevitable correction. We walked with clients through career changes, retirement transitions, and personal losses. It was a full year!


THE NEW CALENDAR
Finally, let’s take a peek at the pictures on our 2025 calendar. At SVA, we always have more to learn and ways to improve. Here is a snapshot of three specific plans we have for 2025:

  • Leverage a secure, AI-based note-taking tool to improve our analysis and service. AI is not perfect, but it can be very helpful. More to come in February!

  • Review every client’s estate plan in the fall. Do their documents accomplish what they really want? Are the right people named for the right roles?

  • Pursue (illiquid and semi-liquid) alternative investments that offer competitive returns and are less exposed to the forces that may harm stock market returns.

Why not a calendar with dogs and cats, AND dream vacations?

We are excited about this year and recognize that no calendar only has pictures of our favorite people and places. We know that some unexpected things may happen. Rest assured, we are here for you during all of them.

Happy New Year!

Chart of the Month: 2024 In Review

Austin Boyce, Portfolio Management, Emerging Advisor, Process Designer

2024 was another great year for markets, building upon a strong 2023. Every asset class had a positive return in 2024 from the S&P 500 leading the way at 25% to fixed income at 1.3%. Robust US performance occurred despite concerns around inflation, recession predictions, and Fed policy changes. While large technology companies continued to dominate the headlines, positive performance spread across the market, with eight of the thirteen sectors within the S&P 500 achieving positive returns.

2025 is sure to have its share of market-moving events. It is impossible to know what those will be, when they will happen, and what impact they will have. As the chart shows, performance within a given asset class can vary significantly from year to year. That's why, at SoundView, we use well-constructed, diversified portfolios aligned with client risk profiles to help you reach your financial goals.

Chart of the Month: Portfolios Traditions

by Austin Boyce: Portfolio Management; Emerging Advisor; Process Designer

As the year winds down, traditions often take center stage.

For many of us, this includes shared meals, time with family and friends, or looking ahead with resolutions for the coming year.

One important tradition we have at SoundView is to monitor client portfolios to ensure they stay aligned with your investment policy statement and investment objectives. With this info, we can take action to rebalance portfolios as needed. The chart below shows how portfolios would have been impacted over the last fifteen years if a portfolio was never rebalanced.

Year to date, the S&P 500 index is up around 25%, which is on top of a 26.3% return in 2023. As investors, we appreciate these substantial returns, but it’s important to ensure our portfolios don’t drift, potentially exposing us to more risk than we need or are comfortable with. Using the example above, a portfolio composed of 90% equities and 10% bonds has a much different risk profile than one with 60% equity and 40% fixed income. This highlights the importance and need for rebalancing.

At SoundView, our proactive approach to investment planning keeps you on track and addresses issues before they arise. Ask your advisor for more details on your portfolio!

Your Own Swiss Banker: Freeze Your Credit

by Ben Jennings, Lead Advisor, CFP®

The primary reason for freezing your credit has nothing to do with your credit. It's for your security.

Imagine a scene from one of the many films where clues to a central mystery are held in a Swiss bank (think of James Bond, or Jason Bourne!). The defining characteristic of a Swiss bank is the Swiss banker - a serious, mature gentleman with gray hair at his temples, dressed in a 3-piece suit, the pocket watch in his vest pocket somewhat anachronistic but adding to his gravitas. His paramount role is to ensure the security and privacy of the items his clients entrust to him and ensure these are accessed only by his clients.

Think of the credit freeze (also known as a credit lock) offered by each of the three major credit bureaus as your personal Swiss banker.


The “Keys” to Freezing Credit

A major goal of digital criminals who seek out details about your identity is to open a new financial account in your name, against which they can borrow, purchase, etc. To complete such a transaction, they not only need the information they might secretly obtain from you, but the institution where they want to open a new account also requires access to your credit report before granting credit. Without access to your credit file, no credit will be granted.

To use another banking analogy, such a transaction is like a safe deposit box at your local bank branch: opening the box requires two keys.

So, while you do everything you can to protect "your key" (use passwords that can't be easily guessed or generated, for example), we also want you to protect the other key - in this case, access to your credit file.

Follow the instructions (found here) to set up (or confirm you have already set up) a credit freeze at each of the three major credit bureaus.

The turn of the calendar to 2025 is a great time to take a few minutes to put your own Swiss banker in place!

Chart of the Month: Social Security Payments Increase

by Kevin Slater, Lead Advisor, CEO, CFP®

Social Security beneficiaries will get a 2.5% raise for 2025! This is not the first time they have increased payouts. In fact, they have a formula - Good old CPI-W!

CPI-W Explains It All (But Not Always in Time)

The US Bureau of Labor Statistics (BLS) calculates this version of the Consumer Price Index (CPI) by measuring the spending of urban wage earners and clerical workers, about 28% of the US population, where most income comes from clerical or hourly wage jobs. The CPI you hear about most often, CPI-U, tracks expenses for a broader sample of the overall US population.

So, what’s wrong with a raise? The problem is receiving it a year after prices have already gone up. This is not a problem when inflation is low, but it certainly can be when prices are jumping in back-to-back years, as they did in 2021 and 2022. Social Security checks were not increasing fast enough for those dependent upon them.


Takeaways: Social Security provides nice inflation-adjusted benefits - however, client portfolios must also be built to cover shortfalls as they appear in the economy.


Giving Thanks for Smart RMD Strategies

by Kevin Rigg, Lead Advisor, CFP®

The holiday season is upon us, a time for joy, festivities, family, and… RMDs? Yes, it's that time of year again when we start thinking about next year’s Required Minimum Distributions from retirement accounts. Like preparing the perfect Thanksgiving feast or wrapping gifts for loved ones, getting ahead of your RMDs now can save stress later.

At SoundView, we're already hard at work estimating 2025 RMDs for our clients who have their own retirement accounts (and will be at least 73 years old in 2025) or who own inherited retirement accounts. We are currently working to ensure RMDs are completed in January, aiming to avoid any potential tax complications. We'll be taking a close look at several key factors, including charitable giving, tax withholding, and the newly clarified rules for inherited accounts.


Charitable Intent

The IRS provides a way to reduce the tax impact of RMDs through Qualified Charitable Distributions (QCDs). Many of our clients take advantage of this strategy, and we have already started reviewing and updating charity lists and QCD amounts for 2025. For those who have not utilized QCDs, here is a quick primer:

• Allows those 70 ½ years of age or older to make gifts directly from their individual retirement account (IRA) to a qualified charity.
• Counts toward satisfying the RMD without being treated as taxable income.
• Often leads to net lower taxes compared to making outright cash gifts.

If you satisfy the requirements and are interested in making QCDs from your retirement account, please let your advisory team know. We can help with the details and ensure that the paperwork is ready this January to complete the QCDs and satisfy any RMDs on your retirement accounts.

Just as many use the holidays to share blessings with those in need, QCDs are a wonderful way to align your financial planning with the season’s spirit of giving.


Tax Withholding

Our tax planning process involves projecting both your current and future annual tax liability. It is possible to withhold funds from an RMD for federal and/or state income taxes, which is usually much simpler than making estimated tax payments throughout the year. Your advisor will discuss these details during your Strategic Planning meeting this fall and let you know if tax withholding from your RMD is recommended in the coming year.


Inherited Accounts

RMDs from an IRA or retirement plan will cease after death. If a spouse inherits the account, they can generally roll the inherited IRA or plan account into an IRA in their own name, which allows them to delay taking RMDs until turning 73. If a non-spouse beneficiary inherits the account, they are subject to different rules, and the requirements have become quite complex in the last several years (if you don’t believe us, check out this chart!). Rest assured, your advisory team is up to date on all the inherited account RMD rules and will help you navigate any annual requirements.

SoundView is committed to helping clients navigate the complexities of retirement account distributions and ensuring their retirement accounts remain on track.


Chart of the Month: The President & the Economy

by Kevin Slater, Lead Advisor, CEO, CFP

It is a presidential election year, and we are hearing many claims from candidates on how well the economy would do under their leadership, as well as accusations of how it would fare under their opponent.

Warning: this month’s chart may not match your expectations.

May I have the (fact) check please?

Presidents Don’t Own the Economy’s Playbook

In August, we looked at how the S&P 500 performed during different administrations; this month, we are looking at the overall economic performance during those same years.

Presidents have a lot less impact on the overall economy than they would have you believe. Often, they tout some sort of jobs or economic initiative, but those are a drop in the bucket of the overall economy.

How often are they “responsible” for a recession? In every case (under Republicans or Democrats), the contributing factors leading up to a recession are well beyond their control. Could any of them have single-handedly staved off the 1970s energy crisis, the 2000s dot-com bust, the great financial crisis, or prevented COVID-19? No.

There are far more actors involved, some with arguably more influence on the economy than the president. From the Federal Reserve to entrepreneurs, from consumers to corporations, and from homeowners to Congress--there are many, many hands contributing to the health of the US economy.

The president does have an important and influential role in our country and the world. Thoughtfully cast your vote this November, but know that economic control is more complex than political promises.


The Two Minute Warning

by Austin Boyce: Portfolio Management; Emerging Advisor; Process Designer

If you’re anything like me, fall equals football time. As I have been transitioning to my new role as a Financial Advisor, I lean on the wisdom and experience of our entire advisory team, especially our three Lead Advisors who often take on the role of coach. Here are some strategies from their playbooks as we head into the year’s final quarter.


Assess Healthcare Needs – Most employer plans, the individual plan marketplace, and Medicare all include November as open enrollment time, so no better time than now to start considering the best plan for the upcoming year. Plans and personal needs change from year to year so evaluating the available options is essential.

Max Out Retirement Accounts – The 2024 contribution limit is $23,000; if you turn 50 before December 31st, you can put in an additional $7,500. You still have a few paychecks left to increase your contribution rate to ensure you max it out (you’ll want to make sure to evaluate the contribution rate again in January to know you are on track to meet the 2025 maximum).

SoundView Advisors’ Head Coaches, Hard at Work

Spend Flexible Spending Accounts (FSAs) – These accounts are set up as use-it-or-lose-it. Some employers may offer a grace period into next year or allow for some carryover. Make sure you know the rules for your account so you don’t lose any money!

Charitable Contributions – If you aren’t itemizing your deductions but are giving to charities, it might be worth considering “bunching” your contributions so that you give multiple years in one year to push you over the itemized threshold.

Tax Bracket Management – If you have had a temporarily low-income year for 2024, communicate that with your advisor (if you haven’t already). We can implement strategies to take advantage of the relatively lower income.

Tax Evaluation – For W-2 employees especially, now is a good time to look at your most recent paycheck and evaluate if your tax withholdings are on track. Better yet, ask your advisor to review your pay stub and see if any changes or estimated payments should be made for the last quarter of the year.


October is an ideal time to implement a strategy for tackling these year-end tasks. Before you know it, the holiday season will be in full swing, and 401k’s, HSA’s, and taxes will be the last things on your mind. Your SoundView team is available to answer questions and help you call the right plays for your financial game plan.


Chart of the Month: Back to Class with the YIELD CURVE

by Kevin Slater, Lead Advisor, CEO, CFP

Traditionally, at the start of the new school year, we review important concepts from the prior year that will be fundamental in continuing our educational journey. Welcome to your fall class! Since “the yield curve” is featured in articles past (here, and here) and present (here), let’s review what the yield curve is and what it can tell us.  

What is the “yield curve”?

Fixed income portions of a portfolio are often primarily made up of bonds- lending instruments that enable corporate and government entities to raise money to fund operations or other projects.  US Treasury obligations are considered among the most secure, liquid assets available, with nearly $900 billion bought and sold every day (per SIFMA).  Treasury Bills, Notes, and Bonds are issued and sold with a variety of maturity dates:  short-term: 1 month to 1 year (e.g., Treasury Bills); medium-term: 2 years to 10 years (e.g., Treasury Notes); and long-term: 20 or 30 years (e.g., Treasury Bonds). 

The fixed-income markets determine what the “appropriate” interest rate for the various maturities should be. This is based on many factors, including Treasury supply and demand for fixed income, economic expectations, US Federal budget deficit levels, and Federal Reserve policy expectations. 

The yield curve itself is a simple graph that plots what the market implies is the appropriate current interest rate (or yield) for each maturity.  Connecting the dots usually creates a sort of curve.

Three Lessons in the Yield Curve

First, it provides an up-to-the-minute market-based valuation for Treasury securities. This helps investors make portfolio-level decisions.

Second, the yield curve is a useful summary of the overall market’s expectations of the economy and interest rates. Higher future rates suggest growth and a stronger economy. Lower future rates suggest economic weakening or a recession.

Finally, while it gives hints on how the general market feels about the economy, it is not a reliable predictor of what will happen in the future.

Why does it matter?

The yield curve is one source we use when projecting returns from various portions of our bond portfolio.  It is also a tool for evaluating returns from other types of investments. Does additional risk result in additional reward?  Ultimately, it helps us guide clients on the asset mix needed to achieve their goals.


Disability Insurance: Plan for Interruptions

by Krista Wallace, Advisor, CFP®

Earlier this summer, I encouraged exercising the freedom to “obligate ourselves by choice,” but we will likely encounter an interruption or two. Sometimes, these interruptions are joyous – a new connection, a trip to a bucket-list destination, or a happy accident.

At other times, an interruption can cause fear as we face uncertainty. Four years ago, a dear friend of mine was facing this: at age 40, he received a heart-related diagnosis which robbed him not just of the ability to earn an income for his family but also his pride. Newly married, depression set in as well. He felt like a failure even though he wasn’t (and isn’t!). He and his wife began the arduous task of filing for Social Security Disability while navigating a drastic reduction to their household income. They had to choose to find new meaning and adjust their goals for their life together while utilizing their available resources.

Disability insurance is one option to replace income from working if you become injured or ill. Your advisor will review your need for and access to this wealth management tool this fall. We will also be clarifying some terminology for you to unpack what a disability is and what it is not.

The Basics

Disability insurance is a form of earned income protection, that safeguards against a loss of wages for a season of time. This could range from a few weeks to years. How you become disabled can impact how long your policy will provide benefits.   

Many employers offer some type of coverage, and many states offer coverage, as does the federal government with the Social Security Disability Insurance Program (SSDI). Standalone policies are also available through many insurance companies. When purchasing a policy, you should consider your occupation, age, and income.

How and When Do I Qualify?

A qualifying disability can have many definitions across policy types. For example, when a child is born, the policy benefit is often determined by the type of delivery and recovery period for the mother. On the other hand, Social Security Disability payments are much harder to qualify for but can last longer and provide access to Medicare benefits prior to age 65. My friend has been fortunate enough to access these benefits, but only after three years of stressful denials, lifestyle changes, and ultimately the need to hire an attorney.

The Risk

A 2022 study by Social Security reported that 25% of 20-year-olds will become disabled sometime before they reach retirement age. So, the risk becomes not if we become disabled but when and how. Our task is to find a way to control and transfer the portions of risk that we can and continue to take care of ourselves in the meantime.

When life interrupts our ability to earn an income, our future goals can go unfunded, and the stability and sustainability of our plans can be at risk. Finding a way to address this risk proactively is incredibly important early in the plan when income generation is critical, but it can continue to be a priority throughout our working lives.

Protecting your income is essential for staying on track with your goals. Talk with your advisor about disability insurance to ensure you’re prepared for any unexpected challenges ahead.


The Fed Cuts Rates! So, Now What?

by Kevin Slater, CEO, Lead Advisor, CFP®

Undoubtedly, by now, you have heard from multiple sources that the Federal Reserve Bank (“The Fed”) cut short-term interest rates by 0.50% last Wednesday (9/18). There are reasonable expectations that they will make further cuts later this year and in 2025.

For consumers and borrowers in general, this is good news as the cost of borrowing is dropping. Mortgages, car loans, business loans, etc. will all be less expensive.

For savers and investors, the feeling is more ambivalent. The rise in interest rates allowed for healthy returns on savings accounts, money market funds, CDs, and short-term Treasuries. Those returns will decrease as interest rates fall.

What about our fixed-income portfolio?

This requires strategy and patience as interest rates fall.  (Learn more Yield Curve basics from Kevin Slater, here.)   We continue to experience an inverted yield curve when short-term fixed-income investments pay higher interest rates than longer-term investments. We expect the yield curve to normalize (when longer-term interest rates are higher than short-term rates) over the coming year or two. How the market moves to get to that point matters.

To Time or Not to Time

At SoundView, we do not believe in timing markets. However, we do believe there are ways to invest that lean toward higher probability events without going “all in.” For example, maintaining well-diversified equity portfolios while investing a higher proportion in US large-cap stocks - we think they will outperform other areas of the market more frequently. We still invest in many of those other areas but with a lower proportion of the portfolio.

With fixed income, we have invested heavily in shorter-term bonds. This has worked well with a few brief exceptions. We do believe the yield curve will normalize, but when and how are still up for debate. If short-term rates fall while longer-term rates stabilize or rise, short-term bonds will outperform long-term bonds for a while. That has been the case for the past few days, but there is more to come as The Fed makes choices and the markets anticipate their impact.

On the horizon

We anticipate one or two trades in fixed-income portfolios in the next three to twelve months. What and when will depend on Fed policy and market responses. We will continue our work to both preserve capital and generate a reasonable return for our investors.


Life Insurance: Plan to Live

by Nichole Harrison Advisor, CFP®

Life Insurance:  Plan to Live

Last quarter, I introduced my mantra, “Plan to Live, then Live the Plan,” and how this idea fosters a sense of freedom in my life. This principle encourages us to envision a future where we actively shape our lives according to our goals and aspirations.

As we dive into the theme of Risk Management this fall, I started to think about whether or not life insurance is a deviation from my plan to live.  Do I really need life insurance? And better yet, do my kids?

I’m sure many of you have asked yourselves these same questions. As advisors, we see all sorts of questions and strategies when clients first begin working with us.

The answer, when dealing with uncertainty of any kind, is it depends.

Your plan to live might include providing financially for those dependent on your income--using dollars today to protect unearned and relied upon dollars of tomorrow. Life insurance can play a crucial role here by providing a safety net for your family, covering expenses, and maintaining their quality of life in your absence

Your plan to live might include legacy gifts to pass to family or charities. Life insurance helps bridge the gap between the income you generate now and the financial support your loved ones may need later.

Your plan to live might include a strategic plan in the present to provide an investment in the future. With this plan, you are making a conscious decision to secure the future today and live in the present. You can focus on living because insurance is doing the job for a different outcome.

The answer to these questions often hinges on the uncertainty we face in life. The need for life insurance is not a straightforward yes or no—it depends on your unique situation and financial goals.

Life insurance can be a powerful tool that complements your plan to live. It’s about extending your influence and safeguarding the future, making sure your dreams and goals continue to benefit your loved ones long after you’ve moved on. As for your children, the need for life insurance might not be as immediately obvious. However, there are scenarios where it can be beneficial. For example, it can cover potential final expenses or medical costs, or lock in a low premium rate for your children while they are young and healthy.  

We are looking forward to our conversations with you this fall about your plans to live and how we can work together to accomplish them.


Chart of the Month: The Market & Politics

by Austin Boyce: Portfolio Management; Emerging Advisor; Process Designer

I don’t watch much TV, but when I do it is usually via a streaming service. I recently made an exception to watch the Olympics live and was reminded of how many commercials there are on live TV.  Also, regarding the timing of the Olympics in relation to the election cycle, I noted that it felt like every other commercial was a political ad.  Can any of you relate?

Many political ads are designed to play on people’s emotions, particularly fear. While those emotions may be valid when voting, they should not impact your investment strategy.

For the vast majority of presidential terms, the market is higher at the end of the term. This may beg the question, “How much impact does a president really have on the stock market?”

Our goal is to help you stay the course and avoid decisions primarily motivated by emotions. Your advisor is looking forward to your investment questions during the Strategic Planning meeting this fall or at any time. 

 


New Employee Spotlight: Danielle Taniguchi

My Journey to SVA
I am thrilled to have joined the SoundView Team as Kevin Slater’s Executive Assistant. I have actually known Kevin for about 15 years now - which is very helpful as I transition into my new role. I began my professional career in several different human resource roles at Starbucks and later Amazon until I decided to take a step back from the large corporate environment. For the last 6 years, I have been the administrative assistant at my church.

               Danielle & Justin

Family
My family is the most important part of my life. I am married to my college sweetheart, and we have 2 young children. I have lived in Seattle my whole life, with a brief venture to Eastern WA in childhood and a short stay in Vancouver, BC, a couple of years ago. We currently live in North Seattle and share a home with my parents.



          Bold & Beautiful Baked Bread

Hobbies
I graduated from Seattle Pacific University with a BA in English Literature in 2010. As an English major, I have retained my love of reading. I love fiction - my favorite authors include (but are never limited to) Abraham Verghese, Anthony Doerr, Annie Dillard, and Stephen King.

I also love exploring our beautiful PNW landscape in the mountains and lakes on hikes and biking excursions.

   Fashionable Butters of the World

My most frequent hobby (outside of reading and hiking) is baking. I love to bake anything and everything, but I enjoy baking sourdough and pastries the most. I even own a sweatshirt with all my favorite butter brands depicted on the front!

While I am only in the second month of my tenure at SVA, I can already see that it is going to be a place where I can grow, learn, and serve clients and the team well. I am a recovering perfectionist, and I long to use my gifts as an organizer, people connector, and all-around high achiever for the GOOD of all!

I am looking forward to meeting many of you in the coming months.

Summer Lovin’: The Sizzling Relationship Between Inflation and Interest Rates

by Kevin Rigg, Lead Advisor, CFP®

Summer lovin', had me a blast, summer lovin', happened so fast...

Just like the whirlwind summer beach romance between Danny and Sandy (in the movie Grease), the relationship between inflation and interest rates continues to heat up our ongoing conversations with our clients.

Last summer, we experienced many hot days with the sun blazing high and temperatures rising—much like inflation, where the cost of goods and services steadily rises over time. On days like these, a “dreamy”, refreshing splash of an ice-cold drink is just what is needed to provide relief—this is like the intervention of interest rates, working to cool things down.

When the economy heats up and prices start to soar, central banks, like the Federal Reserve, step in as the lifeguards to provide some aid to the economic climate. They raise interest rates to temper the economic heat, making borrowing more expensive and saving more attractive. It’s a delicate dance that helps to slow down spending and investment, cooling off rapid price increases. It sounds simple in theory, but how does it play out in the real world?


Tell me more, tell me more, did you get very far?

When inflation began to take hold post-COVID, the Federal Reserve was initially slow to respond based on the premise that higher prices were “transitory” and would come back down as supply shortages and labor imbalances worked themselves out. In early 2022, when it was obvious that inflation remained stubbornly high, the Fed finally began raising rates from its target range of 0%-0.25%. Rate increases continued steadily until they peaked in August 2023. It was an astonishing increase of over 5% in less than 18 months, and surely this would cool off an overheating economy and rein in inflation, right? Not so fast.

Just as any relationship has its challenges, the dynamic between inflation and interest rates doesn’t always play out as expected. While the Fed’s dramatic intervention led to prices coming down in 2023 and, subsequently, tremendous stock market growth and a fourth-quarter bond rally, things stalled out heading into 2024, with inflation staying stubbornly high. This led to market turmoil early in the year as the Fed committed to keeping rates higher for longer while investors tried to digest the impact on stock and bond prices.


Tell me more, tell me more. Was it love at first sight?

While bonds have barely stayed above water this year, stock prices have continued to climb, fueled by solid economic growth and AI-driven gains in the technology sector. Even though bonds have struggled mightily over the past few years due to rising rates, yields are now higher than they have been in years, making expected future returns attractive once again.

The markets believe the Fed is likely to begin lowering rates (sooner rather than later), given recent inflation data and other economic indicators. Lower rates usually stimulate economic growth and support higher stock and bond prices, but as the past few years have shown, predicting both the timing of rate changes and their impact on asset prices is incredibly hard.

In the end, the relationship between inflation and interest rates is all about balance, and the Fed is using its tools to keep the economy neither too hot nor too cold, but just right. Like a perfect summer day, it requires just the right mix of sunshine and shade to create a comfortable and enjoyable environment for everyone.


Financial Freedom on the Trail

by Krista Wallace, Advisor, CFP®

“Freedom is only possible by constantly struggling for it.” ~ Albert Einstein


Some say that financial freedom is found when you do not have to “worry” about money anymore. But even when you think that you have “peaked” in your financial freedom journey, there are still mountains to conquer.

Along our journey, the “I want to have it all” cries of our youth move toward contentment. In our middle years, we wish for more time or energy but climb towards the realization that we are enough and we have enough. At the summit, we are free to tie up our loose ends and find peace.

Financial freedom must be defined as the freedom to obligate ourselves by choice, rather than the freedom from obligation impressed upon us by others.


On the Trail

Take a moment to reflect on your present moment, your location on the trail. Imagine what a life free from continual busyness might look like and consider moving towards the freedom to grow, guide, and give in the present.

In the last six months, I have had two friends in their forties pass away - much earlier than each of them (or their families) had counted on. On the surface, this may seem like a tragedy, but I can promise you that neither of these women thought about an errand on their to-do lists in their last moments. Instead, they were surrounded by family, friends, and lived in the present.

Life can be that simple - but oftentimes, simplicity comes after a struggle.


Don’t Look Back

The struggle is not in eschewing the daily habits and attitudes that brought us to this point in our journey. Quite the opposite, in fact. The struggle comes from continuing to prepare for the future while learning to live in the present. It is a delicate balance of goals and gratitude carefully weighed against our wants and needs. Perhaps now, at the midpoint of the year, we might each begin an ongoing practice of recording and reflecting upon our own priorities. And while building our list, we acknowledge that we have only a finite amount of time.

Consider what changes you could make in your own life to better balance your values and future goals with the urgency of being present today. Consider collaborating with your advisor during your next meeting to work towards finding balance and confidence in your plan.

Let us be brave enough to not only know better, but to do better - together.

That is financial freedom.


Chart of the Month: The Winning Streak Continues

Stock investors have little to complain about in the first half of the year. U.S. Large-Cap stocks outperformed every other asset class in the first half of 2024. International equities have also done well, and U.S. Small-Cap stocks are in the black. Happily, the equity side of our portfolios is well-diversified, with a focus on large U.S. and developed markets.

Bonds, on the other hand, are generally struggling. We have been skeptical about how quickly interest rates might come down and, thankfully, have invested quite differently from the bond index.

Model portfolio returns are already at or near our projected annual long-term average. Let’s hope the second half of the year retains the gain and we finish the year strong.

Chart of the Month: What is the Current Rate of Inflation? 

Chart of the Month: What is the current rate of inflation? 

The price for everything seems to have gone up lately! Are we just pining for the days of 50-cent sodas, or have prices meaningfully increased?  And if they have...how much

The rate of inflation is extremely difficult to calculate in real-time. The US Bureau of Labor Statistics generates multiple measures using various formulas, weightings, and sources. Each has data inputs, which may be months behind or make broad assumptions in the estimate. 

Consumer Price Index (CPI) measures the out-of-pocket costs for regular purchases of goods and services to an urban consumer. It is the most widely known price index.  

Personal Consumption Expenditures Price Index (PCE) tracks total cost for goods and services including the share paid by consumers, employers, and governments (i.e. subsidies). This is the index the Fed most closely watches. 

Producer Price Index (PPI) follows prices received by domestic producers for their products and services. It was formerly known as the Wholesale Price Index. 

Core Inflation- focuses on a smaller number of goods and services - ignoring food and energy costs. 

Because of the different inputs, we anticipate different results for each.  Here are the most recent numbers:  

Yes, prices are higher than they used to be, making consumers and businesses uncomfortable. The Fed wants to use its powers to get Core PCE down to 2%.  

Are we headed that way? PCE and PCI are at or near their 12-month lows, suggesting inflation is coming down.  

We may not see fifty-cent sodas again, but hopefully, it will be a long time before they cost $5.00! 

Exploring Risk Management Strategies: A Closer Look at ACAT

By Kevin Rigg, Advisor, CFP®

As we look ahead to 2024 STP client meetings (click here to read April’s article), it is important to refine our understanding of risk management. Often, insurance and risk management are used interchangeably, and terms like "protection" can be misleading. We propose a more precise approach.

We face risks daily and manage them using four main strategies, summarized by the acronym ACAT:

  1. Avoidance: Completely avoiding the risk when possible.

  2. Control (or Mitigation): Reducing the likelihood or impact of the risk.

  3. Acceptance (or Retention): Accepting certain risks when avoidance or control is impractical.

  4. Transfer: Transferring the financial consequences of a risk, typically through insurance.

Consider a typical morning scenario: driving to work. Here's how ACAT applies:

  • Avoidance: Staying home avoids the risk of a car accident but is often impractical.

  • Control: Driving cautiously and minimizing distractions controls the risk.

  • Acceptance: By driving, we accept the inherent risk of an accident. Insurance does not reduce this risk.

  • Transfer: Car insurance transfers the financial risk of an accident to the insurer, though we retain some risk through deductibles.

The financial industry emphasizes risk transfer, but many significant risks, such as those related to health and lifestyle, cannot be transferred and instead are best managed through personal choices and behavior change.

Our goal in financial planning is to help clients make intentional decisions that align with their long-term priorities. Risk management is a key part of this process, and it goes beyond just purchasing insurance. By understanding and applying the ACAT framework, we believe clients will be better equipped to navigate daily risks and protect their well-being and financial health.

 

We look forward to our upcoming conversations to navigate this with you in the fall.