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For my first 31 years in the investment business, and until the “Covid Lockdown of 2020” (‘The Lockdown’), college tuitions increased consistently faster than the national inflation rate, to the extent a higher annual increase was built into financial planning models for future education costs, like future health care costs. While ‘The Lockdown’ had an overwhelmingly negative impact on nearly every aspect of American society, it was the impetus that awakened millions of citizens who were being duped into paying a ridiculous sum of money for, at best, a marginal education. This in no way reflects upstanding colleges and universities which soundly educate students in fields useful to society, like science, medicine, nursing, mathematics, engineering, info tech, and architecture, institutions which remain in high demand and continue to raise tuitions today; rather, it refers to the thousands of lesser-known schools capitalizing on the misguided demand for college degrees offering little practical use, institutions now slashing tuition rates and scrambling for economic relevancy.¹ Consider the facts as you plan the funding of your own family’s future education:

• ‘The Lockdown’ forced students into a digital setting, exposing the cost and distraction of college entertainment. For serious students, this raised a wonderful question, “what is the marketable value of the education I am receiving in the workplace?”.

• Lacking an encouraging answer, scores of serious Gen Z students are rethinking the whole process of their secondary education and taking a good look at the alternatives, discovering a highly marketable, credentialed trade or skill can be acquired in a specialized field of interest for a tiny fraction of the cost and time!

• This development has led to 14 colleges being closed in 2023 alone,²  many more slashing tuition drastically,³ and is the most encouraging development in America’s educational system in generations. Go Gen Z!

Free enterprise has re-entered the setting of secondary education and is having a profoundly positive effect, showing promise of a more competitive future for America. Encourage young people everywhere to understand the basic principles of finance and economics, and the importance of a valuable, marketable, specialized education, and warn them well in advance not to pay a penny more than is required to obtain it.

Think about it, Shaun.

“Do you see a man skillful in his work? He will stand before kings; he will not stand before obscure men.” ~Proverbs 22:9

“An investment in knowledge pays the best dividends.” ~Thomas Jefferson

1 The JOLT, by Stephen McBride, “College tuition prices dropped for the second year running”, January 31, 2024

2 Inside Higher Ed, “A look Back at College Closures and Mergers”, December 21, 2023 https://www.insidehighered.com/news/business/financial-health/2023/12/21/look-back-college-closures-and-mergers-2023

3 Inside Higher Ed, “Tuition Resets Continue Amid Public Skepticism of College’s Value”, September 15, 2023 https://www.insidehighered.com/news/business/revenue-strategies/2023/09/15/amid-skepticism-colleges-value-tuition-resets-keep

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

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Effectively planning one’s retirement often requires going beyond the question of the extent to which that retirement is funded. It involves mapping the logistical intricacies of a puzzle with many moving parts, each with financial, tax, and estate ramifications. The initiation of Social Security benefits is a piece of this puzzle. Consider the key issues:

• The pre-requisite to receiving Social Security benefits is to work and pay taxes for 10 years.

• Social Security benefit amounts are based on income, years worked, and the age benefits begin. The retiree’s most financially beneficial ‘start date’ results in the maximum lifetime benefit, including inflation and the time value of money. Advanced retirement planning programs can run these calculations and convey results in simple terms.   

• Full benefits are received at Full Retirement Age (FRA), which for most people is age 67. Benefits can commence as early as age 62. The earlier benefits begin the lower the monthly amount is, but benefits also continue to increase after FRA until age 70, as this chart shows:

Claiming Age         Benefit Adjustment¹

  62 -30%

65 -13.3%

67* 0%

68 8%

70 24%

*Full Retirement Age

• It’s noteworthy reduced benefits for pre-FRA claims compound  indefinitely, even for surviving spouses; in other words, annual increases are based on the reduced monthly benefit, and are, therefore, also proportionately lower.² 

• Genes and longevity, lack of program funding and the possibility of future ‘means testing’, age/benefit charts, and other income sources all factor into the strategic and important decision of when to initiate Social Security benefits.

The decision to initiate Social Security benefits will likely impact: i) the allocation of your retirement capital, ii) the decision of when to initiate income streams from investment accounts, iii) your withdrawal and depletion rates on those investment accounts, iv) your tax return the year benefits begin and thereafter, and v) the ultimate value of the estate you leave to your beloved heirs. Put your time in on this one, and blessings on your decision! Don’t be afraid to ask for help, and be quick to share your success with those in need.

Think about it, Shaun.

“Give, and it will be given to you. Good measure, pressed down, shaken together, running over, will be put into your lap. For with the measure you use it will be measured back to you.” ~Luke 6:38

1,2 Smart Asset, “Social Security Benefit Reduction for Early Retirement Chart”, August 3, 2023, written by Mark Henricks

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

I vividly recall the horror of approaching the limits of my strength and conditioning while on a winter mountain climb years ago, and yet far from safety. It was a crushing revelation that I had overestimated my preparation and misjudged the physical requirement of the expedition, and as a result, was faced with an extremely life-threatening situation. It has been reported by Doc Eifrig, a retirement income specialist and partner at Stansberry Research, that the greatest fear of most American retirees is running out of money too soon, yet many do! Consider the following practices as you plan your own financial homestretch:

• Plan your retirement meticulously, giving consideration to every detail, for “which of you, desiring to build a tower, does not first sit down to count the cost, whether he has enough to complete it?” ~Luke 14:28.

• Consider part-time employment during the early to mid-years of retirement, realizing every dollar earned is a dollar not withdrawn from retirement capital accounts.

• Maintain a strict budget and practice counter-culture frugality, realizing every dollar not spent is a dollar not withdrawn from retirement capital accounts.

• Accelerate repayment of debt, and don’t fully retire until you “owe no one anything” ~Romans 13:8. Retiring in debt is like trying to swim the English Channel with twenty-pound boots on.  

• Keep investment expenses to a minimum, realizing every dollar of lower expenses remains invested and continues compounding!

• Avoid catastrophic risks, from which you may never recover. As Warren Buffet said, “Rule #1 is don’t lose money; Rule #2 is don’t forget Rule #1”.

• Consider strategic Roth Conversions in early retirement, in particular, after full employment and before Required Minimum Distributions (RMD’s) begin, when your tax bracket is likely lowest.

• After RMD’s begin, keep the money invested (after withholding occurs) when possible, realizing every dollar not withdrawn remains in your retirement capital accounts.

• If still employed after RMD’s generally begin, roll former retirement plans into your present employer’s retirement plan to further defer RMD’s.

• Refrain from buying and selling homes during retirement, an expensive endeavor which involves complicated planning and unpleasant financial surprises.

• If your only permanent fixed income source in retirement is Social Security, consider allocating a portion of your retirement capital towards a second permanent income source, which you can’t outlive.

Knowledge is power, and there is much you can do to avoid the horror I experienced on that mountain; that said, it’s even more important to know that “God is the provider for all of his creation and gives food to every creature” (Psalm 136:25). Blessings on your retirement planning efforts! Shaun.

“A wise man leaves an inheritance to his children’s children.” ~Proverbs 13:22

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

There are noticeable parallels between the stewardship of one’s physical and financial health. Just as a consistent regimen of nutrition, sunshine, exercise, hydration and sleep tends to sustain a healthy person, the methodical practice of simple financial principles tends to produce financially healthy families. Employer-sponsored retirement plans, such as 401(k)’s, 403(b)’s, Profit-Sharing and SIMPLE Plans are venues well-suited to the practice of such principles, and to general wealth-building due to distinct and beneficial features. “Those who gather (wealth) little by little will increase it (Proverbs 13:11), and these plans are a great way to do it!

• Many companies match employee contributions made to these plans (to a certain percentage of annual pay). A 25% match to 3% of income, for example, equates to a guaranteed annual return of 25% on one’s investment before the money even gets invested. Contributing less than 3% of one’s pay in this example is synonymous with special requesting a pay reduction from the boss!

• The tax advantages of employer-sponsored retirement plans can exceed other investment options, especially for high income households, due to their high contribution limits*. Have a fiduciary advisor, in an advisory relationship, work with your CPA to find a smart mix of traditional, Roth, and taxable contributions based on your own long-term financial plan.

• The structure of employer-sponsored retirement plans lends itself to dollar-cost averaging, which forces participants to purchase more shares of a given fund when the price is low, and fewer shares when the price is high.

• Employer-sponsored retirement plans generally offer competitive, low-expense index funds. Every dollar of expense comes straight off an investor’s rate of return, and worse, is compounded indefinitely into the future!

Consider also the following issues regarding your employer-sponsored retirement plan accounts:

• Taking a loan on these accounts is generally inadvisable for several reasons. Loan repayments are usually reinvested at a higher price. The rollover option can become jeopardized. A plan termination can force loan repayment, which, if made from the account by a participant under age 59 ½, becomes penalized.

• Keep your beneficiaries updated, which avoids the unnecessary delay of probate, dodges threats to the tax advantages available, and allows an immediate, tax-deferred distribution to beneficiaries.

• Understand your personal investment objective and risk tolerance, and maintain an asset allocation reflective of these at all times. New regulations allow your fiduciary advisor, in an advisory relationship, to professionally manage your active retirement plan accounts for a modest fee. 

These and other features make the employer-sponsored retirement plan a fantastic option for a significant portion of your total retirement savings. Be sure to make the most of it, and may your efforts to be both physically and financially healthy be blessed! Shaun

“It is God who gives you the ability to produce wealth.” ~Deuteronomy 8:18

* Contribution limits vary by plan type. Over-contributions are penalized.

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.  

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. Investors should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not insure a profit and does not protect against loss in declining markets. 

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Surviving a summit attempt on a world class mountain requires the use of every means available towards success, including proper clothing and gear, physical conditioning, mental preparation, technical training, route planning, team coordination, danger recognition, and, of course, sound and timely decision-making in every instance. Dwelling in such a hostile environment long enough to earn ‘the attempt’, and live to share the experience, is improbable for most ambitious climbers. An equally challenging adventure is the lengthy retirement in a high-inflation environment, a path fraught with perils maximizing the probability retirees will outlive their capital. We are slowly discovering the Fed’s recent rate hikes broke certain components of the economy while failing to fully subdue entrenched core inflation; let’s recognize and engage some inflation-fighting retirement strategies!

• Assume a higher inflation rate in your planning. An impactful and lasting financial dynamic must factor into planning and investment decisions; get this issue on your financial radar.

• Allocate retirement capital towards assets that appreciate, and produce competitive income streams in an inflationary environment (Prior Blog: HighInflationInvestments) Pricing power rules amidst high inflation.

• Live frugally and maintain strict budgeting. Most American retirees spend more money in year one than the final working year. Living on a fixed income with high inflation is serious business; don’t let the above be you.

• Optimize Social Security, which will impact the longevity and productivity of your retirement capital pool. Discover which Social Security option maximizes the probability of the greatest lifetime family financial benefit.

• Diversify sources of income. Use your God-given talents, have fun, and be creative. Every dollar you earn is a dollar that can remain invested, or freely given to another in need. Be a conduit of financial blessing because of your personal fiscal discipline. Will God not bless this profoundly?

• Manage health care costs prudently. Understand your health plan options, features, and costs, and comparison shop¹. Be your own primary health advocate with a solid regimen for nutrition, exercise, sun exposure, hydration, and sleep. Read daily to enhance your understanding of natural good health.

Any great mountaineer who does everything right can still in a flash be devoured by an avalanche, just as fixed income retirees in a fiscally reckless society can be left holding a currency with no meaning in God’s economy. I think this means we should strive for financial excellence but always hold it loosely, and to be thankful for what we have and generous with those in need.

God bless your efforts and Happy New Year! Shaun

“The point is this: whoever sows sparingly will also reap sparingly, and whoever sows bountifully will also reap bountifully. Each one must give as he has decided in his heart, not reluctantly or under compulsion, for God loves a cheerful giver. And God is able to make all grace abound to you, so that having all sufficiency in all things at all times, you may abound in every good work.” ~2 Corinthians 9:6-8

1 Smart Asset, “How to Account for Inflation in Retirement Planning”, October 27, 2023

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

While it’s sensible to witness the ballooning debt load of one’s own over-spending nation and expect an unpleasant conclusion, it isn’t reasonable to presume the process will necessarily mimic The Great Depression of the early 20’TH century. Historically, the financial demise of fiscally irresponsible countries has come in the form of deflation, which Argentina has frequently demonstrated, or inflation, which most recently Zimbabwe graciously illustrated. While it seems broadly understood the U.S. government’s relentless over-spending must culminate in a restructuring of the financial system, it appears little perceived the chosen venue by both the government and central bank is inflation.   

Deflation essentially consists of borrowing every dollar any fool will lend you, stiffing your creditors, and then enduring the awful consequences of trade abandonment, job scarcity, high unemployment, broad demand reduction, decreasing prices, and a hoarding of cash and currency. Think of it as an honest default. Inflation, defined as “an arbitrary increase in the volume of currency at a rate exceeding annual economic output”, is a dishonest default few can perceive. Picture a person handing you a $10 bill while removing a $20 from your back pocket. Inflation is a lining of the national highway of fiscal hari-kari with numerous, pleasant distractions, the greatest of which is the appearance of wealth. Consider how the scheme works, and you will know how best to conduct yourself.

When a fiscally reckless government becomes overly indebted, it can honestly cut spending, which is deflationary, or it can dishonestly monetize its debt by increasing spending and fund it with a combination of money-printing and interest rate suppression. New names don’t change old behaviors; these are the only options. Understand that sufficient currency will be fabricated to continue inflating America’s debt bubble, and that rates will be allowed to rise only enough to convince most people that containing inflation is a priority, and you’ll see how critical it is to do the following things:

• Own assets that appreciate in an inflationary environment, like real estate, stocks, natural resources, and hard assets.

• Prioritize income-producing investments, as inflation places a premium on present dollars while devaluing future dollars.

• Focus on quality, as speculative frenzies will be periodically sifted, like in 2022. In stock ownership, this means capital efficient businesses with large free cash flow; in bond ownership, it means not lending to heavily indebted entities.

• Maintain a long-term mindset with investment holdings. Deflation is decisive, but inflation takes time. America may dominate the world in a highly inflationary environment for many more years. Only when the currency is widely rejected will the inflation scheme unravel, and there is no viable replacement on the horizon today for the U.S. dollar.  

Remember chronic inflation always destroys cash savers and pensioners first. Stay productive as long as possible. Avoid idle cash savings. Understand it’s not that assets are suddenly appreciating faster, but that the currency is losing value more precipitously!

Most importantly, be thankful for the blessings you have and be generous with those in need as you celebrate Christmas this year, Shaun.

“For to us a child is born, to us a son is given; and the government shall be on his shoulder, and his name shall be called Wonderful Counselor, Mighty God, Everlasting Father, Prince of Peace.” ~Isaiah 9:6

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

While favorable circumstances are agreeable to human nature, and therefore, by most people welcomed and enjoyed, it is primarily amid trial and suffering that personal growth occurs, and in which the character is fashioned. My strongest memories as a mountaineer consist not of getting a photo shoot on the summits of 14,000 peaks in cloudless days, but of desperately trying to survive life-threatening storms, with a noticeably high probability of failure! Those terrifying storms proved far more influential to my development as a climber than all the clear days, as they exposed more weaknesses and required more focus, effort, and perseverance. This ‘Trial by Fire’ principle also applies to investing, and since bear markets (defined as a 20% decline in prices from the recent peak) routinely catch most investors by surprise, we’ll be wise today, while the coast seems clear, to consider the opportunities the bear market offers to improve our investing skills.

• Lower valuations on equities are offered, which reduces risk for equity investors. Notable investors build cash prior to a bear market, to purchase stocks at low valuations in a bear market, the very impetus of new bull markets.

• Significant buying opportunities are presented. The most profitable stocks most legendary investors ever owned were generally purchased during a bear market. Warren Buffet, Stan Druckenmiller, Howard Marks, Michael Burry, and countless others have attested to this.

• The market renders an advantage to the judicious buyer. When there are more sellers than buyers, smart buyers notice. When a ‘stampede for the exits’ occurs, smart buyers act. Just as more square feet of a house are exchanged for each $1 invested at low real estate prices, so are more future earnings of profitable businesses in a bear market! The contrarian market is masterful at drawing investors’ attention away from this central issue. The goal is not to strive to time the bear market bottom, but to accumulate great businesses at reasonable prices.

• The efficiency of ‘dividend compounding’ and ‘dollar cost averaging’ both increase during low, bear market pricing. Keep two things in mind: this benefit is realized in the late stages of the next bull market, and stocks purchased in a bear market must still exist at that time to benefit you. Bear markets generally accompany recessions, and recessions generally accompany bankruptcies. Aging climbers ascend only in pleasant weather. Become a scrutinous discerner of quality.

• The ‘Zombie cleanse’ of major bear market/recessions can turn mal-investment into productive capital, increase market competition and efficiency, and set the stage for both a sustainable growth economy and new bull market. Become a duration participant of new bull markets by learning how to behave in bear markets.

Climbing in those big White Mountain storms was crazy, but it greatly enhanced my under-average ability, and over-attention to caution. In 2016, while ascending Mt. Whitney in a light storm, we were astonished by the dozens of climbers literally running down the mountain in terror. The whole summit cone quickly became ours, and we confidently enjoyed the most enjoyable, and one of the safest climbs ever! This is how great investors would describe the bear market. Watch for big swings in sentiment. When universal despondency prevails, your greatest opportunity as an investor has arrived. Have a specific plan; “aim small, miss small”.

Think about it, Shaun.

“Give a portion to seven, or even eight, for you know not what disaster may happen on earth.” ~Ecclesiastes 11:2 

“Lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal, for where your treasure is, there your heart will be also.” ~Matthew 6:20-21

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. Investors should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not insure a profit and does not protect against loss in declining markets. 

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

In early 2014, during the months of training for a one-week winter climb in the Rocky Mountains, past successes had led to a complacency that resulted in too few hours in the gym. The corresponding seven pounds of unproductive weight that I was not accustomed to carrying in the mountains, coupled with colder temps and higher winds than were forecast on Day One, produced a horror that nearly cost me my life, one the Lord knows I shall never forget. Artificially easy credit, coupled with artificially low lending rates over the past decade, have produced a similar false confidence in consumers, and is financially as life-threatening as my Rocky Mountain ordeal. Following the fastest rate increases in 40 years, ‘would-be’ wealth producers are wise to consider the following principles for effective debt management.

• Always remember debt is financially beneficial only when the borrowed money is invested productively after associative expenses, taxes, and inflation. View every temptation to borrow through this lens.  

• Never carry consumer debt. This means settling all credit card balances monthly. Use a card only when funds are pre-allocated for payment. Freeze your cards in a block of ice so you can think about the importance of each purchase while it thaws!   

• Buy certified, pre-owned vehicles with the largest possible down payment, pay the remaining loan off expediently, and drive the vehicle as long as feasible. The cheapest car is almost always the one you already own.

• Never refinance a mortgage or home equity loan without proving it’s to your ultimate financial benefit. When refinancing, DO NOT increase the balance or extend loan duration. Realize a lower rate does not alone prove refinancing is beneficial. Never assume an “interest-only” loan.

• Become debt free before retiring, and never assume new debt while retired. Giving up earned income while in debt is like a mountaineer who plans to borrow the spare goggles from other climbers in a deadly storm; it’s a request for life-threatening injury!

• Avoid margin investing, as investment returns are to be earned, not presumed.   

• Don’t assume rates will stay low long-term, and as a rule, avoid variable rate loans. Why should you bear the risk of rate increases? If you can only afford a loan using a variable rate, the loan is beyond your means, let it pass. 

Manage debt like you would a pet scorpion; keep it to one, cage it carefully, starve it into fragility, and if it hisses at you, exterminate it!

Think about it, Shaun.

“Do not withhold repayment of your debts.”  ~Proverbs 3:27

The rich rules over the poor, and the borrower is the slave of the lender.” ~Proverbs 22:7

“Owe no one anything except to love each other.” ~Romans 13:8

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

It is an established fact that returns on investment are more attributable to sector allocation than all other factors. The financial successes of Benjamin Graham, known as “the father of value investing”, and his star pupil, Warren Buffet, are largely ascribed to their respective and predominant appropriation of invested assets to the single industry of property & casualty insurance. Myriads of investors have been bankrupted for concentrating precious capital to single, ill-timed ventures; in fact, the regional bank failures of 2022 were caused by the disproportionate allocation of reserves to long-term Treasury bonds immediately preceding the biggest rate hikes in 40 years. The examples proving the supreme importance of sector allocation are innumerable. Consider how market dynamics today indicate a considerable reallocation of investment holdings may now be advisable, a concept stock investors have thus far noticeably failed to perceive.

• Low and perpetually declining interest rates in recent decades, in particular from 2009-2021, discounted present cash flows and placed a premium on future cash flows. This caused businesses to build things they’d otherwise not have built, and led to unprecedented mal-investment. It also encouraged investors to abandon fixed-income securities in favor of stocks and other riskier ventures, and led to new records in borrowing and leveraged investing.

• We believe ultra-low interest rates are unlikely to return for several reasons. Low rates weaken the dollar, already experiencing deteriorating confidence globally due to America’s unpayable debt load. The Fed recognizes its error of keeping rates too low for too long and is unlikely to soon repeat the mistake. Inflation has reached the dangerous stage of entering the mindset of consumers and will likely re-surge if rates decline.

• Higher rates mean lower corporate profits, which tends to diminish asset appreciation. It also makes borrowing and avoiding default more difficult for profitless and heavily indebted companies.

• While certain assets are more challenged in a higher interest rate environment, others, like lending, credit, and fixed income investing benefit. Today fixed income investors can receive a positive real (after inflation) return on cash instruments, like CD’s, money market funds and Treasury bills, and hope for equity-like returns from non-investment grade debt instruments. Famed investor, Howard Marks, refers to the new dynamic of higher rates as a “Sea Change”, one he believes will last, and is, therefore, worthy of your observation as an investor.¹

It stands to reason that if market dynamics have fundamentally changed, the best performing investment strategies before the change will likely be replaced by a very different list of winners. The evidence for sustainably higher interest rates suggests that credit, an asset class loathed by investors in recent years, may now be worthy of a larger portion of an investor’s capital.

Wise investors “lean”, they do not jump. This is not a call to abandon stocks, especially the ownership of great, capital-efficient businesses! Rather, it is an observation of a significant, and probably lasting change in the investing landscape. It’s also a call to consider a corresponding and prudent sector reallocation, the investment factor most influential to future returns. Think about it, Shaun.

“Give a portion to seven, or even to eight, for you know not what disaster may happen on earth.”  ~Ecclesiastes 11:2

1 Oaktree Capital, ‘The Memo’ by Howard Marks, “Further Thoughts on Sea Change”, October 11, 2023  

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

Bonds and other fixed income investments may result in the loss of both interest and principle in the case of a default. Rising interest rates result in a lower present value of held bonds. Par value and the return of principle is sure only if bonds are held to maturity.

Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.

Because of their narrow focus, investments concentrated in certain sectors or industries will be subject to greater volatility and specific risks compared with investing more broadly across many sectors, industries, and companies.​

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.