Ep #109: New Year. New Portfolio? Not So Fast!

Benjamin Haas |

📈 Navigating the financial landscape in 2024! 📉 Ben and Adam discuss the impact of market recovery and the common question that comes up in conversation at the beginning of a new year: "should I change my investment strategy?" Tune in for valuable financial planning perspectives and market insights.


0:39 2023 Market Recap & Year-End Recovery
4:32 2024 Market Outlook
5:53 Should You Change Your Investment Strategy in the New Year?
6:57 Reasons Why You Should Stay the Course
16:22 Three-Bucket Theory & Summary

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Benjamin Haas  00:03 

Hi everyone and welcome to A/B Conversations where we will help you CFP your way out of it. A podcast where you get into the minds of a couple of Certified Financial Planners on how we think and feel about everyday financial planning questions and what should really matter most to you. A healthier financial life starts...now! 


Adam Werner  00:26 

Hey, Ben, welcome to 2024! 


Benjamin Haas  00:27 

Big year! 


Adam Werner  00:33 

Is it? 


Benjamin Haas  00:34 

I just turned 40, you're going to turn 40. It's like a whole new decade for us? 


Adam Werner  00:37 

Yeah, we're going to be old. Crazy. 


Benjamin Haas  00:39 

I'm leaning into it hard. 


Adam Werner  00:43 

Cool. I'm not there yet. I got another nine months to go. 


Benjamin Haas  00:49 

So let's kick off the new year! It is not uncommon, I think, the turn of the calendar year is a time for people to just reflect a little bit. It's really no different for our clients and specifically already here in the new year, we know the market recovered. It recovered losses in a major fashion at the end of the year and now we're going to be a question of well, what should I do now? As if something should be changing? I think I'd really like to come at this again, from a financial planning perspective, we'll give some market commentary but let's just talk about this feeling that clients have around the New Year, things feel a little bit better in the market, so what should I do now? 


Adam Werner  01:38 

Yeah, and I think we often see that question comes at the extremes. It's the two opposite ends of the spectrum, I think, more frequently for us, it's more along the lines of the market has recovered. I lean more conservative with my investments; I don't like risk so we've recovered some of these losses. I've been on this roller coaster ride since the beginning of 2022, is now the time that we've recouped some of this. Is now the time to change my investment experience to be more conservative? To not have as much of that roller coaster ride all the way to the extreme of while things are things are doing well, again, should I be taking more risk now that the market is doing okay. So, it's interesting to see those two opposite ends of the spectrum but the point from our side of things is still the same. Does the timing make sense? Has the purpose changed? What has changed in their life that may dictate an investment change? And I think as you alluded to, just because the calendar year flips, doesn't mean that's not how the market works, right? People, the prices of stocks, doesn't necessarily change as the calendar changes. But as you said, it is a natural time of reflection and that can lead to these bigger conversations on just strategy overall. 


Benjamin Haas  03:04 

Yeah, and I think we've come to understand more and more over these last couple of years because the markets been very volatile, that it does weigh on emotions. Let's maybe focus on that more conservative profile now. It's absolutely natural, I think about anything that you go through in your life that's uncomfortable, like take Adam out of the market, out of market conversation. You sir, survived something that felt really uncomfortable. You're going to get to the other side of that and go, great, I survived but I don't want to do that again. I think that's some of the emotion, bonds crushed our conservative investors there for a period of time and still working their way out of that. So, I do think it's absolutely natural for people to say, do you know now, should I change my strategy? Right? So, I put money in CDs at 5% and get rid of these investments, safety feels better. I think we get that and we can give some context around why that may not be a good idea. But the short answer to these questions to your point is, if something's not materially changing in your life, yes. Hopefully, you feel better now that things have started to recover. Let's not do something that in our minds, may just be really expensive. Right, just because things have recovered doesn't mean that, you know, the path moving forward is going to just reverse to the negative, we allocate the way that we do based on the plan, based on what you need, and we can talk about some of that, too. 


Adam Werner  04:32 

Yeah, and all that being said, we would not be shocked in the least, to have some sort of pullback here, some sort of consolidation period in the markets where we're not going to continue this, ridiculous upward trajectory that happened since November 1, essentially. So that is very natural. It's healthy for the markets to go through periods like that so we anticipate that to happen at some point this year, and maybe we're already experiencing this in the first couple of trading days of the year. Part of that is it's all, at least in our minds, when it comes to the timing in this context, the timing of when you get more aggressive, when you get more conservative. It's number one, that's a potential slippery slope, my friend, that could be a fool's errand. But the starting point of where the markets that are really important, right, the fact that we had a really strong last two months of the year and 2023 now puts us at a higher starting point, with stock values now going into 2024. It just makes the hurdle that much higher, to get another large year of returns. It's less likely, doesn't mean it's impossible, we still have a positive outlook on things by the end of the year but the ride to get there maybe rockier.  


Benjamin Haas  05:53 

Yeah, I'll go back to the point on, okay. But the beginning of the year is completely arbitrary, right? If we are planning for people and investing is supposed to be aligned with purpose. What is this money supposed to do for you and when is it supposed to do it? If your cash flow needs in December are no different than your cash flow needs in January, then where the market starts and where it finishes throughout the year, doesn't really matter and that has to be part of the feedback that we're giving to people. If they're going to ask us the question. Should my strategy change? Our immediate first question back to them is going to be? Well, why should it? Is something changing in your life? Is there a material change to cashflow? Is there something big that you have planned? Right? Because we can and we have to know they're going to take money out this year. Maybe the strategy is to put money in a money market fund and try to collect a little more interest. But is it to take this conservative portfolio and make it more aggressive or take this aggressive portfolio and make it more conservative? Typically, not the way that we're going to operate. We wouldn't suggest that people operate that way, right? 


Adam Werner  06:57 

Right. Even your point on if we know people are taking withdrawals, or we know RMDs are going to be needed for certain people this year. The prudent thing to do when we've had a run like this, is you take some of that off the table because we don't know what's going to happen throughout the rest of this year. So, you protect some of that but I think where people sometimes get caught up is from our side of things, when we're managing accounts, we talked about it all the time, the moves that we're making are the dimmer switches, we're not flicking the light on or off and oftentimes, I think that's how often it gets approached that way from the client side. That is, if you feel this way about the market that why don't we go to that extreme and you know, put all our eggs in one basket. Let's make a concerted bet here and some of that is on the more conservative side, not necessarily the riskier side. And it comes down to comfort. There's comfort in knowing if you could get a 5% CD right now for the next 6 to 12 months, you know exactly what you're going to get, doesn't matter what the headline news is. It doesn't matter what you see on the TV, what's happening, good or bad, you’re insulated from that. But to your point, if for investors, we have to take a long-term view because we don't know what's going to happen in the short-term at any point in time. The market will always have the ability to make us look like fools in the short-term, right? Long-term, we know that it's going to work. So as long as that purpose hasn't changed or a need has not arisen in their life, or, again, their situation just hasn't been wildly different. We would want to know more of the why would you want to get more conservative or why you would want to get more aggressive? Because it very well could be that the purpose hasn't changed. But if there's a disconnect between what the expected experiences from a risk level and the actual risk you're taking, we would want to right size that over time.  


Benjamin Haas  09:00 

Sure, and I think that's good, that might be more for people that we really have not worked with or haven't worked with for a long time. Yeah, I want to get more granular in this specific example of people that may be a little bit more conservative because I know you've gotten the question. I've gotten the question and this is now more than just once or twice. Yeah, CD rates are really good. Like, why wouldn't I take money out of my investments now and give myself that guarantee? So, let's go through some of that because I think there may be people that we're not getting the question from but they have that thought in their mind, I'm sure and it is to start by saying we understand, right? That is not an irrational thought. Historically, it just could be really expensive. 


Adam Werner  09:46 

Yeah, and it does speak to just the general, we as human beings are just bad at making decisions with investing when it comes to timing and that just all boils down to our emotional adaptability. Oftentimes, it's contrarian, right? If we have somebody coming to us and saying things are really good, I want to take more risk. Usually to us, that's kind of like the canary in the coal mine. Well, we get enough people coming to us with that as the approach that maybe it's time, we need to actually take risk off the table, because again, we're just bad judges of that and that works on the reverse here, to your point with CD rates, where they're at 5% for a year or so is very compelling. The point being, though, we don't know what's in store for 2024 and I think that even lends itself more to having the guarantee of a CD rate return. But historically speaking, there's a piece from Hartford insurance company, mutual funds, all of that, that they put out that showed when the one-year CD rate has peaked in the past, and they used in their example 2006, the years 1995, 1989, 1984, those one-year CD rates. When you then compare them to corporate bonds, municipal bonds, different areas of the stock market, all these different asset classes that we would invest in, in a diversified portfolio, almost every single timeframe and almost every single other investment has outpaced the one-year CD return. There's a lot of reasons that would go into that but it does just speak to over time, you are rewarded for taking investment risks. Not always in short pockets of time but in the long run, if you're able to stay invested, you're investments almost always outpace whatever cash can generate in any given point in time. 


Benjamin Haas  11:54 

So, I've two thoughts here because here's what I heard. If money's coming from cash, great, a CD instrument may be a really good idea right now because we do believe that the federal funds rate has probably peaked. So, if a bank is going to give you an attractive rate on your cash, great, that's wonderful. But if you're thinking about liquidating your long-term assets, bonds, stocks, whatever it is, to put money into a CD, historically speaking, that may be an expensive decision. That the comfort of that guaranteed rate of return from that CD is probably going to be an expensive comfort because historically, these long-term assets will return more. We saw it already, if we've been telling people to be patient with bonds for a little while now, especially our conservative investors, the Fed funds rate has peaked and they're going to drop rates at some point. Maybe it's later this year, maybe it's next year, who knows, conventional wisdom is your bonds will recover in value but they did already at the end of last year in anticipation of some of this. That's, to your point, the timing of things we can't know and if we try to time things, it's not going to go well. We're always going to be humbled by the market because the market is always a forward-looking mechanism. I think it's going to be an interesting conversation with people because we get it, we get the comfort that can come from that guarantee. But what we need to lean on is the three-bucket theory, long-term investing, you've been through the worst of it. Hang in there, we don't just need to change the strategy because the calendar year changed. 


Adam Werner  13:32 

I guess one of the one of the other potential risks when it comes to the CDs, is that if you were to make a change, right, in your example, I agree. If it's already sitting in cash, putting it into a CD earning more, makes all the sense in the world right now. But if you're pulling from longer term investments that we think over time, we're going to have a higher rate of return for the level of risk that you're taking. If you were to make that shift into a CD, you're now introducing reinvestment risk, at what point when that CD matures, then what are you now doing? Are you buying another CD, which by the way, is probably not going to be at another 5% interest rate a year from now? It's probably going to be lower? We don't know and we don't know to what degree but I would be willing to wager that we're going to see lower CD rates a year from now than we do right now. In the meantime, what has the investment market done? That's the risk. You've been sitting somewhere conservative, that feels good. But now flash forward a year from now, CD rates say they're at 2-3%. Maybe that's exaggerating. They'll be higher than that but point is, that won't feel as good. Now I want to move back into the stock, in the bond market. But what has happened in the meantime? Did you miss out on returns? Again, we don't know. But this year trying to make those bets. That's it. You're almost putting too many of your eggs in the safety basket, where to your point if the purpose hasn't changed, and you were able to ride out 2022, which was a horrible year for almost all investments, and really, for the bulk of 2023, for the first 10 months of the year, bonds were still negative. Not only did they not just stay flat from the terrible 2022, we were even a little bit more negative up until the end of October. Then we had this furious rally to end the year in November and December, bonds essentially ended up close to 6%, different segments of the bond market are closed up close to 10% in a two-month window. Which do we see that continuing to that degree? Probably not. But there is still a really good argument for bonds moving into 2024 that, when you compare, I'll say the risk free in a CD, there's still risk in bonds of course. But we haven't seen an environment like this for bond investing in a really, really long time, where you have a lot of protection in bonds right now, even if things kind of go haywire. Economically, bonds should act as a diversifier again, which we did not have in 2022.  


Benjamin Haas  16:22 

Yeah, and you're potentially clipping higher coupons. I mean, part of the whole point, CD rates are higher. That's in parallel with bond, but new issues on bonds being higher, too. So yeah, again, it's not to say that people are wrong to ask these questions and wrong to engage in these conversations. I just often feel like not only with our clients but on this podcast, we continue to hammer the same thing of, let's have these conversations. But what should we do? Nothing, we should do nothing. If we built the lifeboat around us that fits your plan, then the decision should never be to jump out of that lifeboat.  


Adam Werner  17:02 

Right, ever. So that all comes back to the three-bucket theory, right? If you have your savings and investments structured in a way to insulate yourself as much as possible from the market movements, then the inflection points are when to make changes should be focused more on looking opportunistically at risk and not looking to get out of the way of risk. Because we would hope to have things structured that when things are not good, we have the cash, we have the short-term instruments that are just paying on them to ride out those negative periods. Knowing again, over the long term, you're going to be rewarded for taking risk and by the way, if you were able to structure things that way, when a 2022 happens or you get a little bit of a hiccup through 2023, you're able to take advantage of the downturns and have that work in your favor in the long run too. 


Benjamin Haas  17:55 

I think that's a beautiful way to wrap this up because it all comes back to that three-bucket theory. We don't know where things will go this year. These are fair questions to ask but oftentimes, the time to change strategy is at an inflection point in your life, not an inflection point in the market because we just can't know. All right, 2024 off and running. Catch you next time! 


Adam Werner  18:25 



Benjamin Haas  18:38 

Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only, and are not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you, consult with your attorney, your accountant and financial advisor or tax advisor prior to making any decisions or investing. Thanks for listening! 


Investment Advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Group are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice. 


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