We wanted to share a brief mid-quarter update on portfolio positioning and our current market outlook.

Mid-Quarter Investment Update

In light of the recent events in Iran, we thought this would be a good time to give you a mid-quarter update on your investments.

Since late January, we have been reducing risk in your portfolios. Put simply, the outlook has become more murky, though not clearly bearish.

While we are not outright bearish, more risks than opportunities have emerged since late last year. High valuations, overheated investor sentiment, and cracks in selected credit markets led us to prune risk. Midterm elections in the US also potentially offer a mild headwind to markets this year.

We pruned or sold out positions, especially in areas that had strongly performed. Such areas included equities perceived to benefit from the AI capex surge, certain suppliers, and precious metals.

Conversely, we have built up positions in fixed income (US Treasury), base commodities (energy), and hedged equity. Your portfolios also have a healthy level of cash that will be redeployed into opportunities as they present themselves. However, we believe it is prudent to be patient.

With regard to Iran, it would not surprise us to see near-term volatility continue over the next several weeks. Fears of a spike in oil and potential negative impact on the economy will grow until we get closer to a resolution of the situation. Historically, near-term spikes in fear have presented buying opportunities. We continue to monitor developments.

As always, please reach out if you have any questions about your portfolio or would like to discuss your investment plan in more detail.

Sincerely,

Petr Burunov, CFP®
President / Wealth Strategist

The post Investment Update: March 2026 appeared first on AWM.

“Don’t put all your eggs in one basket.” 

2022 has been a good illustration of this saying for investors.  Both stocks and bonds declined.

It is true that, over the long term, stocks can appreciate from earnings growth, dividends paid, and price expansion.

That does not mean that stocks go up each and every year, especially when valuations are high and interest rates are rising (like now).  There are times to load up – and times to lighten up.

Currently, bonds that earn less than inflation won’t help investors achieve their objectives to grow and defend principal.  (Until these conditions change, you are unlikely to see a lot of fixed income in your portfolio.)

Hence, we have committed a lot of resources and time to seeking other diversified investments.  We are very selective about what you own.  It is arduous to separate the wheat (tenured managers with success that has the potential to repeat for current or new investors) from the chaff (most hedge funds and REITs do not deliver and simply charge expensive fees).

We also demand that they are liquid (you can invest or take money out any working day of the week) and transparent (daily pricing by a reliable third party).

This short blog will tell you a little how your “diversified” investment bucket might help your portfolio.

Introducing a New Strategy to Your Portfolio

In our last newsletter, we mentioned our caution on traditional fixed income.  Rates and credit risk were not enough to compensate for inflation and other risk.  Consequently, cash balances in your account were high.

Recently, we added a new investment strategy that potentially provides some of the positive characteristics of traditional fixed income with potentially lower risk.  This is called “merger arbitrage”.  When an acquiring company (or private equity) announces it will buy a target company, it requires time and regulatory approval before the deal is completed.  The current price of the target company does not fully reflect the acquisition until the deal is completed.

Such a discount creates opportunity for merger arbitrage funds to make money.  Presuming their due diligence on the deal going through is correct, they earn returns by buying the shares of the target company and hedging market risk by selling (going short) of the acquiring company.

The potential benefits to investors might include: (1) steady, positive returns over time, and (2) limited equity market risk due to hedging.  Possible risks include deals falling through and drastic reduction in the opportunity set of deals in which to invest.

Merger arbitrage also has the potential to benefit if interest rates continue to rise, since they can generate higher income on cash invested in deals.  In that sense, merger arb resembles a short duration bond strategy, perhaps with higher potential returns.  (In contrast, many parts of traditional fixed income might be hurt by higher rates; investors might sell high duration and credit risk in favor of a higher, safer yield on money market assets.)

Seeking to Make Money in Rising and Falling Stocks? 

Another manager in your diversified sleeve is an equity long-short strategy.  (This fund is closed to new investors and can only be accessed through select advisors like us.)  The manager invests in securities with solid businesses and cheap valuations on the “long” side while hedging by selling stocks with poor fundamentals and expensive valuations on the “short” side.

The chart below suggests that most managers have reduced or given up investing in falling stock prices for the average stock in the S&P 500.  Less competition might open more opportunity for managers that seek to make returns in part through falling share prices.

We remain cautious on most traditional assets.  Since the market rebound from the June lows, sentiment has grown too optimistic.  While bears talk at cocktail parties and AAII sentiment surveys, they are not putting their money where their mouth is.  For example, the average investor at Bank of America still has very high exposure to stocks (measured as stock allocation as a percentage of total investments).

Indeed, it is close to the all-time high only a few months ago and well above average levels from 2009.

Commodity Investments Ride the Inflation Wave

Your portfolio might also include shares in commodities, including an active mutual fund manager and passive exchange-traded strategies.  Supply constraints and concerns of a weaker dollar might continue to push prices upward over time.  Risks of lower demand from slower economies also exist.

You can read more about our thoughts on commodities here and here .

Conclusion

In bull markets, people typically focus on returns over risk.  But when the markets change, they are reminded that risk still exists.

Let’s be clear.  No one (we ourselves included) can promise you a portfolio without any risk.  It is impossible.

Even getting out of bed in the morning entails risk (you could fall, for instance).  But you do it because most of the time, something good happens.  Even when bad things do occur, the good far outweighs the bad over time.  (Staying in bed all day also entails risk to your health.)

What we seek to do, however, is to take prudent risks.  Not all risk is created equally.  Not all risk is equally likely to happen or incurs damage to your portfolio.

That is why you will see a number of investments of your portfolios, including a chunk in what we call the “diversified” bucket.

If you know someone whose nest egg has been beaten up in the market and needs help to stabilize things, please let us know.  We are here to help.

The post Investment Update: September 2022 appeared first on AWM.

Working with the wrong advisor or getting in over your head trying to manage your own investments might be costly.

So, “What should my financial advisor be doing for me?” Well, let’s look at some strategies that work for my clients.

1. Diversification

Forget the simple 60/40 approach. If your portfolio hopped on that bandwagon, chances are you’re suffering a hefty loss. Bonds are nearly down as much as stocks this year. (If we head for extended volatility and high inflation, stocks and bonds alone might still struggle.)

Your advisor has to come up with something more (and something you might not be able to do yourself). Liquid investments that have the potential to earn returns regardless of stock and bond bull and bear markets.  Commodities, even select active strategies, might play a role to anchor your investment portfolio.

We take a strategic approach to hedge, preserve, and grow principal over time.

2. Exclusive Investments

Large firms with billions of dollars often overlook niche investments that might provide positive returns less correlated to traditional investments. Niche investments have limited capacity for large new investments.  Responsible managers of these strategies understand they need to keep their promise to existing investors and not compromise their investment process with a glut of new clients.

Working with an advisor like us might give you opportunity for diversified investments not accessible to most investors.

3. Tax Planning

In the past, tax optimization strategies were saved for elites. Now, it’s more accessible to those with portfolios between $1-10M.

Active management in a volatile market can keep you invested with long-term investment goals and potentially provide tax savings (versus just sitting on various positions that go up and down).

Simply holding a bunch of mutual funds in taxable accounts potentially sticks you with someone else’s tax bill from prior years.

Skillful use of different investment toolkits allows us to harvest tax losses for you.  We also seek ways to minimize taxes even when you do have to take capital gains.

It’s been a choppy year, and I fear it’s far from over. If your investment approach isn’t working, it’s time for a new one.

You need an advisor who will fight for you and your future. My team is ready and happy to help.

Give us a call to schedule a free consultation.

The post What Should Your Financial Advisor Be Doing in a Volatile Market? appeared first on AWM.

Here’s A Brief Update on Your Investments:

As recently mentioned in the quarterly newsletters in January and April, your portfolios entered the new year with a moderately cautious stance.

We still maintain that same view. Monitoring economic and corporate earnings data thus far reported it is possible that the choppy volatility in the market environment might persist for a while.  As mentioned previously, factors include:

• Inflation (raw materials scarcity an issue, looming wage increases could complicate the picture)
• High traditional asset market valuations
• Risk to corporate profit margins from cost inflation, hence earnings at risk
• Tighter monetary policy
• Risk of economic recession
• Geopolitical tension (while lower on our scale of worries, it does feed through)

Offsetting potential risks, investor sentiment near-term appears to be depressed (a contrarian indicator compared to the frothiness in 2021 following a strong market recovery).  Additionally, current interest rates remain low in historic terms.

As a reminder, we have been reducing risk since last year:

• Reduce buckets in traditional asset classes (fixed income and equities), including amounts and more volatile sectors (credit, small-cap)
• Increase diversified bucket (hedged equity manager, select commodities)
• Increase cash (dry powder to take advantage of opportunities when appropriate)

We remain vigilant of market risks and opportunities. Our bias remains moderately cautious, particularly on most fixed income and equities. As opportunities or risks present themselves, we anticipate making more changes to your portfolios.

We will continue to keep you updated.

Sincerely,

Petr Burunov, CFP®
President / Wealth Strategist

The post Investment Update: May 2022 appeared first on AWM.

We are reviewing each account and making any necessary adjustments to reflect your personal investment strategies.

Update on Your Investments

As recently mentioned in the quarterly newsletter in January, your investments entered the new year with a moderately cautious stance.  High valuations, less favorable growth, and rising interest rates motivated us to enter the year with some caution.

A month later, we still remain of that view, though we have made some tweaks in your portfolios.

We increased allocations to precious metals by increasing gold and adding silver.  Both of these metals might benefit from several things.  Persistent inflation, questions about the US Dollar, and rising macro risk (mainly economic, potentially geopolitical) potentially might offer positive diversification.  (In other words, precious metals in certain situations might offer positive returns even with choppy equity and fixed income markets.  Naturally, precious metals might also lag if markets were to resume a solid rise, as they did in 2021.)

Consequently, we have also raised cash and reduced exposure to fixed income.  Despite the recent increase in market interest rates, they still do not appear attractive.  When adjusted for inflation, interest rates of 10-year bonds remain negative.  We would anticipate using cash to make further adjustments to portfolios.

Your existing exposure outside of traditional equity and fixed income might also provide diversification benefits.  Your investments in alternatives, including broad commodities and a hedged long/short manager, might continue to offer returns that do not move with falling stock and bond prices.

On a selective basis, we have also done some tax harvesting.  Given most assets appreciated in 2021, it was difficult to find opportunities to pass on tax savings to those of you with taxable accounts.  In contrast, 2022 has offered some opportunities.

Realizing tax losses while maintaining (or reducing) investment positions might allow flexibility later in the year for us to reallocate risk.  For instance, in some cases, we might choose to sell shares with gains that would be offset by the realized losses taken now.  If we do not do anything for the rest of 2022, taxable investors might gain the benefit of capital losses on their taxes filed next year.

How are we able to do this?

The plethora of investments in today’s markets give taxable investors a lot of flexibility.  It is possible, for example, to maintain one’s exposure to large US stocks and harvest capital losses.  One could sell one Exchange Traded Fund (“ETF”) and buy a different ETF with similar (or identical) exposure.

We remain vigilant of market risks and opportunities.  Our bias remains moderately cautious, particularly on most fixed income and equities.  As opportunities or risks present themselves, we anticipate making more changes to your portfolios.

The post Investment Update: February 2022 appeared first on AWM.

I mean, if we all knew the secret to investing, we’d be richer than Warren Buffet, am I right?

Jokes aside, the “secret” is often disappointing.

True investing success boils down to hard work and patience, or what I like to call discipline.

What do I mean? Let’s take a look at three types of discipline I work to develop with my clients:

1. The Discipline of Planning

Before you even think about investing, you have to plan. Do your homework.

What do you hope to accomplish? What do you dream about? What is most likely to happen? How long until you need this money? Are you prepared to weather out good and bad years?

Without a plan, it’s near impossible to reach your goals. Developing discipline is thinking about the future.

2. The Discipline of Commitment

You have to ask yourself, “Am I in this for the long haul?”

It’s easy to be swayed by our friends and family. Are you ready to commit to your plan even when it’s difficult?

I like to think of farmers in this situation. They keep sowing and cultivating their dirt to prepare for the eventual harvest of their hard work.

They don’t listen to their neighbors who are disgruntled and walk away from their work. Instead, wise farmers stick to their crops and earn yields even when others gave up long ago.

Thinking strategically can help curb your emotions.

3. The Discipline of Adapting

How will you hold up to the pressures that life throws your way?

Successful investors do not react to temporary situations on the flip of a coin. Rather, they periodically evaluate their strategy, seek out prudent consultation, and make adjustments when circumstances have truly changed.

These tend to be big changes like retirement, age, health, inheritance, marriage/family, etc.

Discipline means adapting to these changes.

There you have it. The secret is out. To find success with investing, discipline has to be your priority.

I strongly encourage each of you to seek out a Fiduciary Advisor. They can help keep you on track and develop discipline in your finances.

Let’s Chat

The post What’s the Secret to Investing? appeared first on AWM.

High Unemployment

The spike in unemployment from below 4% last year to over 10% this year is blamed mainly on the COVID lockdowns. Some of the jobs are coming back as case numbers decline and state economies reopen for business. (Indeed, the government reported a decline in unemployment to below 8.4%.)

However, a resumption of layoffs in the private sector (moving from jobs temporarily furloughed to jobs permanently eliminated) might slow the recovery in late 2020. (Case in point: United Airlines expects to furlough over 16,000 of its 90,000 workers in October[1]. American will lay off another 19,000.[2])

Another factor to watch is the “fiscal cliff” that could cause further shortfalls in income for unemployed Americans. Many people claiming unemployment received additional government money. Such as an extra $600 per week in benefits. (Government income supplements, or “transfer payments”, ballooned to nearly 30% of total income from roughly 17% prior to the recession.)

If Congress fails to enact another CARES Act, the loss of the extra weekly benefit might put a big dent into Americans’ income.

Structural changes in “the new economy”

• • Urban to suburban/rural – Lockdowns, rising crime, and high cost of doing business is motivating workers and businesses to rethink their commitments to urban centers. While causing real estate booms in markets outside, cities inside might be suffering in terms of vacancies and oversupply for a while.
  • Work from home – pandemic lockdown has alerted employers to the risk of widespread disruption if they contain operations only to corporate offices. Travel & entertainment budgets have also been cut in response to corporate expense discipline.  New technology has lowered the bar for many professions to work remotely and productively.
  • Physical to electronic (cash, shopping, business) – Online adoption from the lockdown might also continue into other areas of the economy and society. Infrastructure needs will rise to accommodate this shift.

We continue to watch the markets and how your investments are positioned.

Please reach out to us with any questions.

[1] https://www.foxbusiness.com/economy/united-airlines-furloughs-coronavirus-pandemic
[2] https://www.zerohedge.com/personal-finance/american-airlines-warns-admin-keep-bailing-us-out-or-least-19000-more-jobs-are

The post Investment Update and Comments on Jobs (How Many and How We Work) appeared first on AWM.

So, what’s the good, the bad and the ugly of the SECURE Act?

Let’s find out!

PROS:

1.      Now you can contribute to your IRA beyond age 70 ½ 

The new law eliminates age restrictions for traditional IRA contributions as long as you have earned income.

2.      Required minimum distributions (RMD’s) moved up to age 72

IRA owners catch a break in 2020 and can postpone their RMD’s until they turn 72.

3.      Qualified charitable distributions (QCD’s) from your IRA

It’s a great tool to use in tax planning strategies. But it can have a negative impact if you’re not careful.

CONS:

1.      Inherited IRA distributions generally must now be taken within 10 years

If you inherited an IRA on January 1^st, 2020 or later, the stretch IRA is replaced with a 10-year rule for most beneficiaries. Inherited accounts prior to 2020 still carry the old rules.

2.      Eligible designated beneficiaries are the exception

If you are a surviving spouse, minor child (not grandchild), disabled, chronically ill, and/or not more than 10 years younger than the IRA owner you can still qualify for a stretch IRA.

3.      Trusts no longer work as planned under the SECURE Act

Your trust needs immediate review, especially if it names your IRA as a beneficiary. Seek out an estate planning specialist to explain the new laws.

PROCEED WITH CAUTION:

1.      Each parent can withdraw up to $5k penalty-free from their retirement plan(s) per birth and/or adoption

This will help to pay for adoption expenses.

2.      Employer plans will start to offer annuities

Many provisions of the SECURE Act are designed to make it easier for employers to offer annuities. If you’re not sure an annuity is the best option for you, get a second opinion. Annuities might pose problems down the road.

It’s time to talk to a professional financial advisor

A fiduciary financial advisor can help clarify changes in the tax code and how they impact your family and personal finances. Take this opportunity to update your planning strategies. Your plan should evolve as you do.

The post How SECURE Should We Feel about DC’s New Tax Laws? appeared first on AWM.

We’re encouraging everyone: don’t let fear rule your finances.

Many of you have developed a financial plan to achieve successful retirements and we’re very thankful that during these times, those plans have helped to mitigate uncertainty.

If you don’t have a plan, we encourage you to think about developing one and putting it in place. Knowing where you are going can help give you peace of mind and confidence, especially in the midst of economic and social uncertainty.

During seasons like this, our focus is to continue reviewing risks and looking for opportunities.

What have we been doing?

1. Continue to Further Reduce Risk.
   

   After such a strong market in 2019, we suspected we were due for some sort of correction. That said, we did not expect the coronavirus or a crash in oil prices to move the market to such an extent.

   In January, we started reducing risks in your portfolios. Specifically, we reduced positions in emerging markets, small-cap equities, and intermediate high yield debt in favor of cash and gold.  We had concerns over international growth, especially from China, causing us to cut emerging markets. High leverage and higher credit risk (in part due to the collapse in oil prices first on lower China and air travel, then recently the collapse in OPEC talks with Russia) made us cut positions in small-cap and high yield.

2. Roth Conversions.

   This might be a good opportunity for some to think about doing Roth Conversions. Converting more shares at lower prices can potentially reduce your future RMD’s once the market starts to recovers.

   As a result, these conversions could reduce your taxable income in the future.

3. Tax Harvesting.

   Taking down risk in portfolios followed by the market’s subsequent decline has also created opportunities for tax harvesting in taxable accounts.

   This might be a good opportunity to start taking gains off the table and offsetting them with more current losses to minimize or even reduce future tax liabilities in taxable accounts.

4. Looking for Opportunities.

   This week we are slowly beginning to selectively re-enter the market when the opportunity presents itself and aligns with your goals. We are being patient and not jumping in too quickly.

   We are also seeking to enhance client portfolios in the process. For instance, one shift is to remove individual companies with more exposure to economic downturn and add more diversified investments (individual companies or broader equity baskets).

What might lie ahead?

Much uncertainty remains.

• Coronavirus quarantines will put economic activity on hold for much of the spring, if not longer.
• Low oil prices will pressure US energy producers for a while longer.
• Earnings are likely to decline in 2020.

However, US Treasury yields have collapsed below inflation. Relative valuation for equities, particularly those with sustainable dividend yields, have improved immensely. While their stock prices have cratered, US banks appear to be better capitalized than in 2008.

Valuation has not yet been enough of a compelling argument to boost risk-on assets like stocks and commodities. Yet, when the US economy eventually starts to resume operating at normal capacity with a peaking in Coronavirus cases, we think the market might start to recover on less bad news.

It’s impossible to know when the chaos will end. That said, we are proactive and vigilant.

What can you do?

1. Stay calm and don’t panic. Stay true to yourself and don’t let your emotions run your financial decisions
2. Have a plan. If you have a financial plan, lean into it and let it do its job. If you don’t have a plan, now is the time to get one.
3. Let’s look for opportunities. Tax season is upon us and we are encouraging you to look for opportunities to utilize the new tax code to save on tax liabilities.
   Now might also be the time to think about slowly re-entering the market in small increments.

Thank you for your trust in us as we partner on your financial journey with you.

The post Separating Emotions from Investing is Key to Surviving Coronavirus. appeared first on AWM.

First and foremost, we hope for good health and wellness for you and your families.

Our Perspective:

As I mentioned in our last update, we anticipated some sort of market correction in 2020.

What we did not expect, was the Coronavirus striking this much fear into our communities and economy. No one knows when the madness will end.

Despite the volatility in the market, we are starting to see opportunities. Instead of continuing to reduce risk, we might be encouraging our clients to take on a little more in the coming weeks.

This is not my first time saying this. It’s crucial to have a strategic Financial Plan. Not only will a plan give you peace of mind, but it will also provide discipline to weather the ups and downs for the market.

During these uncertain times, I can only suggest that you be careful how much the media and noise of every day affect your decision making.

Remember, the stock market also tends to overreact to the various noises in the world:

1. We saw the market turn overly euphoric in January 2020, with little to no justification.
2. What we see now is the market turning overly depressed due to recent corrections and the abundance of negative news headlines regarding the Coronavirus.

In the midst of chaos and havoc, I encourage you to stick with your long-term goals. Don’t let emotions run your life.

In this update, I want to cover a few areas that could suggest stabilization in the market and also a few caution signs we are carefully watching.

Signs of Hope:

1. A good portion of the stock market advertises yields above those of the 10-year US Treasury:

   

2. Perspective on the recent decline: we just went from euphoria to summer 2019 levels on the S&
3. Central banks are still providing “punch to the party” by cutting interest rates.

   

Signs of Concern:

1. The bond market is worried about growth (U.S., not just international).

However, current low rates might keep on stimulating the housing market via cheap mortgages (refinancing, too).

2. Airline traffic in the US might be an indicator of consumer fears.
3. Lead indicators for global activity are weak.

Summary:

As we continue to see volatility in the markets, here are a few things you can do:

1. Don’t let the news control your emotions.
2. Stay focused on your long-term goals.
3. And don’t forget that if you have a plan in place, it will give you confidence for your success.

Thank you for your trust in us as we partner on your financial journey with you.

The post Investment Update: Did the Market Just Catch a Cold, or Is It Terminally Ill? appeared first on AWM.