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.

Happy New Year! As we welcome 2025, we are excited to share some incredible news. Our firm has officially acquired Rodman & Associates, LLC, a highly respected CPA firm in Spokane, WA. This partnership allows us to expand the range of services we offer, bringing even greater value to you through integrated financial planning and tax expertise. We are thrilled about this opportunity to serve you even better in the year(s) ahead!

In addition, we are in the process of rebranding to better reflect our combined vision and expanded services. In the coming months, you will notice updates to our logo, colors, and overall brand identity across printed materials like this newsletter, as well as online through our website and client portal. We’re excited for you to experience this fresh new chapter with us!

2025 Market Outlook: A Year of Volatile Opportunity?

As we look ahead to 2025, we can’t help but reflect on the unique market dynamics of 2024. While many streams typically contribute to overall market returns, this past year, one (or perhaps two) streams dominated. The so-called Magnificent 7 tech companies delivered incredible gains of over 48%, while the remaining 493 companies in the S&P 500 posted a more modest 15%. Smaller stocks, unfortunately, saw even less exciting returns.

Today, these seven companies make up less than 2% of the S&P 500 index by name but hold a staggering $1 of every $3 invested in it—a testament to their outsized influence. Gold also had a strong year, climbing more than 20%, though it plateaued following the November elections as the Fed hinted at pausing rate cuts. In contrast, many global markets struggled, with Europe, China, and emerging markets facing headwinds. Even fixed income saw only modest gains, and energy trended lower.

Looking ahead, could 2025 bring a shift in these trends? As always, there are reasons to be optimistic (the Bulls) and areas to remain cautious (the Bears). Here’s a snapshot of both sides:

Reasons for Optimism (Bulls)

1. AI Investments Continue: Big tech’s spending on AI shows no signs of slowing. The question remains to what extent a broader range of companies actually adopt AI for profitable growth.
2. New Leadership in DC: A fresh administration promises deregulation, lower inflation, and reduced interest rates. Will these changes create meaningful growth despite political challenges?
3. Potential for Peace: Cooling geopolitical tensions in regions like Ukraine and the Middle East might foster global growth, though pressures in areas such as China and Taiwan remain.

Points of Caution (Bears)

1. Valuation Concerns: At over 21 times earnings, the S&P 500 is priced at the higher end of its historical range. Future returns might depend more on earnings growth rather than simply higher prices for the same amount of earnings.
2. Consumer Pressures: High inflation and interest rates put a strain on many consumers. Cracks are appearing in housing, credit, and auto loans. Risk of a weaker labor market might amplify these challenges.
3. Lingering High Rates: Despite the Fed’s pause on cuts, mortgage rates remain elevated. Government borrowing continues to fuel inflationary pressures.

While we approach 2025 with caution, we also see opportunities within this complex environment. Your portfolios remain prudently diversified. They balance traditional investments such as short-duration US Treasury fixed income and US large cap equities with themes such as robotics and India. Additionally, alternative strategies, including equity long-short, commodities, and merger arbitrage, potentially account for a range of possible market scenarios.

Stay Safe: How to Spot Smishing Scams

We want to pass onto you another heads up for protecting your personal data. While we have heard nothing from our clients, Schwab has informed us that hackers are using another scam to target people.

The newest scam attempting to steal client data is called “smishing.” Hackers send clients text messages from international numbers claiming that a large disbursement has been made from their Schwab account. The message asks you to click on a link to verify or cancel the transaction.

Just to be clear: neither we nor Schwab will ever contact you by text related to your money. We would only give you a personal phone call to confirm your identity and permission on any disbursement.

Here’s how you can spot these phishing attempts:

Red Flags:

• International numbers: The texts come from foreign phone numbers.
• Large transactions: They claim an ACH was debited, often in the thousands of dollars.
• Suspicious links: The link leads to a fake Schwab website with a misspelled URL.
• Urgency: The message asks you to reply “Y” and click the link to cancel.

What to Do:

• Don’t click any links: Always go directly to the Schwab website to check your account.
• Report it: Forward the text to phishing@schwab.com and delete the message.
• Add extra security: Enable two-factor authentication and a verbal password on your Schwab account.

Stay alert and don’t fall for smishing scams—Schwab will never send account updates via text from international numbers!

Don’t Overlook Beneficiaries

Life brings change—marriage, divorce, the birth of children, or the passing of a loved one. Keeping your beneficiary forms current ensures your assets go where you intend.

It’s important to remember that beneficiary designations often override the instructions in your will. If these forms are outdated, it can create conflicts and complications. By maintaining accurate beneficiary designations, you can help reduce legal disputes and delays, ensuring assets transfer smoothly without the expense and complexity of probate.

Additionally, specific accounts like IRAs, 401(k)s, and other retirement plans may have tax implications when passed to beneficiaries. Without proper planning, they can create unintended tax burdens. Reviewing and updating these forms regularly can help protect your legacy and provide peace of mind.

Sincerely,

Petr Burunov, CFP®
President / Wealth Strategist

The post Client Newsletter 1Q25 appeared first on AWM.

As the vibrant spirit of spring blooms around us, we’re thrilled to reconnect with you in this quarter’s newsletter!

Investment Update: Enhancing Your Diversification

Just because the S&P 500 is close to all-time highs does not mean everything else is.

We remain concerned about inflation, interest rates, and market valuations.

To be cautious does not mean we are passive.  We have made some additions to your investments in liquid alternatives as well as commodities (what we call “diversified sleeve”).  These investments potentially offer opportunity for principal growth and diversification outside of traditional stocks (“growth sleeve”) and bonds (“income sleeve”).

Depending on your account’s risk/return profile, you might have exposure to some or all of these liquid alternative investments (daily pricing, and in all but one case, daily liquidity):

1. Equity long/short fund that takes limited exposure to direction of stock markets. This fund seeks to make returns on buying cheap companies with strong market positions and cash flows and hedging by selling shares in overvalued companies with deteriorating balance sheets.  Returns can be volatile, particularly in markets that lack trend or narrowly-focused rallies.  Longer term, the fund has had a positive long-term track record due to strong stock selection despite various headwinds (growth stocks outperforming value, momentum stocks continuing to be bid up beyond fundamentals).
2. Corporate event driven fund that consists of 2 strategies: (1) merger arbitrage, the majority of the fund, seeks to profit from the completion of announced corporate mergers and acquisitions, typically by going long the acquisition target selling at a discount to the announced price and shorting the stock of the acquiror, which nets to limited exposure on absolute direction of stock markets, and (2) special situations, the minority of the fund, seeks to profit on idiosyncratic opportunities. Examples might include buying/selling options around investor days, special dividends, and other situations.  Taxable clients have the potential to benefit from limited capital gains distributions as this fund was inherited from a previous manager’s strategy that generated meaningful tax loss carryforwards.  While this is a lower volatility strategy than other of your investments, principal can go down if certain deals break up or trades in the event driven strategy do not work out.
3. Late state venture capital fund that invests in private companies with sales of over $100mn and potentially further rapid growth. This space has lagged public markets since the peak of the venture capital bubble in 2021, yet the companies in the portfolio have continued to grow, in some cases turning profits, and secondary market liquidity has also increased, providing more transparency for valuations.  Future catalysts for appreciation might come from a rise in mergers and acquisitions (larger public companies or other funds buying the fund’s underlying companies), further financing rounds for future growth, and IPO’s into the public market.  Investors with longer time horizons (years) potentially benefit from the only public vehicle with a daily NAV.  Risks include economy and specific risks to any of the fund’s nearly 100 company investments.  The fund also has limited windows for redemption.  (Accordingly, it is a modest allocation to portfolios with more aggressive risk appetites.)
4. We have also begun a position in a managed futures fund that invests across multiple asset classes based on technical price factors. Times of macroeconomic and political uncertainty, including trending inflation and interest rates, potentially might offer bouts of volatility to traditional asset classes, but they might also provide opportunity for managed futures managers to shine.  Managed futures managers take positions long or short on equities, bonds, commodities, and interest rates depending upon their views of price and other technical trends in the markets.  Low volatility driven by low inflation and interest rates was a significant drag on performance for many funds in the last decade, but we believe the times might be shifting in favor of managed futures.  Our specific manager invests in an index meant to replicate the returns of some of the world’s leading managed futures managers.
5. Additionally, we have maintained meaningful exposure to commodities (precious metals, broad based commodities including energy, agriculture, metals). Recently, we have added small positions to cryptocurrency and gold miners.  These all potentially benefit from rising government debt, uncertainty in inflation and interest rates, and geopolitical risk as well as loss of confidence in the US Dollar globally.  Supply shortages in certain commodities offer a further potential catalyst.  The main risk would come if the US Dollar regained credibility at the expense of alternative currencies.

Beyond Price: Nourishing Your Wealth and Future

Let’s talk about family wealth management. It’s not just about numbers and transactions; it’s about values and relationships.

In the media, there’s a lot of talk about whether financial planning and family wealth management is all about the price. Some suggest that the cheapest option is the best because all you need is a basic portfolio and no personalized service. But that’s like saying all you need for dinner is fast food.

We see things differently. We understand that each family is unique, with its own goals, dreams, and challenges. That’s why we offer personalized advice and services tailored to your specific needs.

Our approach is about more than just investments. It’s about building a long-term relationship that extends beyond the numbers to include your family and your future. We’re here to help you stay on track and avoid costly emotional decisions that can derail your financial goals.

So, while others may offer quick-service solutions, we believe in serving up a gourmet meal—a comprehensive plan that nourishes your financial health and empowers you to live your best life. Because when it comes to your wealth and your family’s future, value matters more than price.

Maximize Your Financial Management with Our Online Portal

Are you taking full advantage of your online portal? It’s a powerful tool at your fingertips. Here’s what it offers:

• Consolidated Financial Overview: Link external assets and liabilities to easily track all your finances in one centralized platform.
• Personalized Planning Tools: Tailored features to assist in your financial planning journey.
• Comprehensive Reporting: Access various reports related to your AWM accounts effortlessly.
• Data Collection Tools: Streamline your financial planning process with tools designed to gather relevant information.
• Secure Vault: Safely store and access AWM reports, upload documents for sharing, and maintain a private documents folder.

If you need help setting up your credentials, logging in, or navigating your online portal, please contact Debbie.

Looking Ahead: Proactive Planning for Your Financial Future

As we bid farewell to another tax season, it’s a fitting moment to shift our focus forward. My most successful clients recognize the value of planning and have peace of mind in knowing that they are taking care of their financial health.

While tax season may be behind us, the opportunity for strategic planning lies ahead. Don’t wait until the year’s end to assess and make crucial decisions. Now is the time to be proactive and set the groundwork for a prosperous retirement.

Whether it’s mapping out investment strategies, optimizing tax efficiency, or safeguarding your legacy, our team is here to guide you every step of the way. Remember, true wealth isn’t measured by how much you earn, but rather by how effectively you preserve and grow what you have.

Sincerely,

Petr Burunov, CFP®
President / Wealth Strategist

The post Client Newsletter 2Q24 appeared first on AWM.

It’s the season of change! We have officially welcomed Fall and completed our merger with Charles Schwab. My team appreciates your patience as we continue to make sure everything is in good order.

You are now able to log in and view your accounts through Schwab Alliance. If you have not already set up your credentials, I encourage you to do so. Visit schwaballiance.com, select New User, and then follow the prompts.

Investment Update

Since the last quarter, our stance on your investments has remained essentially the same: defensive.  After posting a strong rally in the first half, equity markets stalled in the summer and have fallen in September.  High valuations, bubbly technical factors, and questionable earnings prospects in a slowing economy hurt stocks. Higher interest rates and risk of rising inflation also provide headwinds.  Your investments are positioned in a large chunk of T-Bills (minimal credit and low interest rate risk), liquid alternatives (equity long/short, merger arb) with smaller amounts of commodities and equities (mainly US, small emerging market).

Not All Coupons Are Created Equal

A major change over the last year has been an increase in interest rates offered on different investments.  Our newsletter from a year ago highlighted emerging opportunities in select high coupon, low credit risk fixed income that we had not seen in previous years.  Since then, yields on corporate bonds, preferred stock, bank CDs, and annuities have also risen.

The question remains: does all that glitters equate to gold?  We have written an extensive guide that explains why all that glitters is not gold.

We would caution investors not to chase investments simply because they advertise a high yield.  Credit risk (“Will they actually pay you back?  Are they paying you a competitive rate relative to similar borrowers?”) and interest rate risk (“How will this investment look if markets raise/lower overall rates?” are key factors to consider.

Liquidity is another factor.  If you need your principal sooner, how long would it take for you to get it out?

Each investment has specific risks.  Bank deposits insure up to $250,000 in FDIC insurance per depositor.  But what if you have more money to invest?  CDs penalize you on interest earned for early withdrawal before maturity.

Annuities advertise the opportunity to lock in rates for a longer time.  Yet, they come with high costs and limited liquidity (surrender charges, minimum withdrawals) over many years.  What if you need your money sooner?

T-Bills have minimal credit and interest rate risk.  The main risk is if the Fed were to begin cutting interest rates; yields then might fall.

Preferred stocks offer high yields, but they face price risks depending on what both stock and bond markets do.  Additionally, if the issuing company faced bankruptcy risk, bondholders would get paid before preferred share investors.

The Myth of Compound Market Returns and the Reality of Why Timing Matters

When the stock market is doing well, you are likely to hear about “compound market returns.” This concept is often used to convince regular investors to put their money into Wall Street’s hands. But what exactly is it, and is it as great as it sounds?

The idea of compound market returns is based on the belief that the stock market always goes up, making it a good time to invest no matter when. You might have seen charts that suggest if you had invested 120 years ago, you would have earned a consistent 10% annual return (8% after inflation).

However, the problem with this rosy picture is that most people don’t have 123 years to invest. We need to focus on the time we actually have.

For most of us, retirement is not so far away. Many people I know say they have at most around 15 years. This is quite different from the 30 or 40 years often suggested by financial advisors.

Many people don’t start saving seriously for retirement until their mid-40s. By that time, they’d graduated, found a job, gotten married, had kids, and sent them off to college. So, they only have about 20 to 25 productive working years before retirement.

Another factor is Stock market valuations, which go through cycles of highs and lows.  When valuations were high in the past, the market didn’t perform well until those high valuations came back down.

The key point here is that when you start investing is critical to your financial future.

Now, let’s address the second myth: “Compound Market Returns.” Albert Einstein famously said, “Compound interest is the eighth wonder of the world.” But he was talking about interest, not stock market returns.

Popular sources have used this quote to encourage people to keep putting money into the stock market consistently, assuming an 8% annual return. They claim compounding will make your money grow.

However, there’s a big difference between actual returns from the stock market and an average or compound market return. Stock market returns are unpredictable and can vary widely from year to year.

In reality, compound market returns are a myth. Market downturns can have a severe impact on your investments, especially if they happen when you’re close to retirement. You might be able to recover lost money over time, but you can never recover lost time.

With current high valuations and interest rates, there’s a real risk of another market downturn. Investors need to be realistic about their future returns and the time it takes to reach their financial goals.

Beware of Smishing: A Sneaky Cyber Threat

Smishing, a blend of “SMS” and “phishing,” is a real cybersecurity risk. It can happen through text messages, WhatsApp, or other social media chats. Attackers send mass messages with a sense of urgency, aiming to trick recipients into clicking malicious links. Once lured in, victims may end up on fake websites where their personal information is stolen. Be aware of bogus messages posing as trusted banks or financial institutions

Sincerely,

Petr Burunov, CFP®
President / Wealth Strategist

The post Client Newsletter 4Q23 appeared first on AWM.

I hope you are enjoying a wonderful summer! Let me update you on a few important topics.

Why You Want to Keep Your Financial Plan Up to Date

Only 2 years ago in 2021, we had a fantastic year in the markets. Sometimes, strong markets spur complacency. We made an effort to steer our clients away from it.

We encouraged our clients to be proactive while markets were on our side. We advised you to develop a financial plan and be ready for a downturn, should it come. We also urged you to challenge yourselves with probing questions, such as:

• Where are you now?
• Where do you want to be?
• What is your timeline?
• How much volatility can you afford?
• Have you had major changes in your life?

At the beginning of last year, we spoke again and cautioned that 2022 might not be as good of a year for your investments. Concerns about rising interest rates and their impact on asset bubbles in real estate and other areas suggested caution about the kinds of investments you chose to make.  2023 has started out better, but we still have concerns as to how sustainable the rally might be.

It is easy to get caught up in your emotions when it comes to money.  Some people are prone to falling in love with certain investments. Many of you are close to retirement and worry about your financial situation once your paychecks stop coming in. Others, who are already in retirement, might find it quite difficult to suffer a reduction in investment income.

Those that planned ahead experienced solid returns and were in a better position to sustain their lifestyles in spite of the market volatility since 2022. 

However, those who lacked a strategic financial plan faced greater risk, and are more inclined to make ill-informed choices based on emotions and not rational, strategic planning.  Even with only moderate losses and a pickup in market volatility, they were more vulnerable to panic by obsession with the ups and downs of news produced by media outlets.

Having a well-thought-out strategic plan can significantly increase your likelihood for success.  When we understand how much time you have, how comfortable you are with taking risks, and how quickly you need access to your money, we can create strategies that are better at helping you. It’s like having a bigger toolbox to find the best solutions for you.

Investment Update: When the Crowd Zigs, Zag

Recently, when I turned on the business news, many of the guests interviewed were waxing poetic about the attractions of the market and the end-of-recession prospects for 2023.  It left me scratching my head. 

Barely 1 in 20 names of the S&P 500 are actually up in 2023 (after a correction of most stocks in 2022).  The rally has focused mostly on names perceived to benefit from Artificial Intelligence (AI).  Valuations appear high relative to history, yet earnings for most of the market are not rising and falling in many cases. 

Banks and many stocks geared toward economic growth are down.  Only 3 months ago, several banks had failed because of large, sudden deposit outflows.  Now we are seeing default rates on commercial property loans pick up. 

Interest rates remain high and are not falling.  Stocks celebrated the Fed not raising rates in June, but Canada, UK, and Australia DID after taking similar pauses.  While headline inflation appears to be slowing, core inflation is resilient.

While we took up risk slightly in the first part of June for more aggressive accounts, at current levels, we are skeptical.  Yields on cash above 5% appear compelling relative to most other assets.  It is possible that the bubble mindset has returned to parts of the market, but without confirming fundamentals, it risks bursting.  The global economy shows pockets of weakness. 

Call us from Missouri (“Show me”), but we remain defensive in the near term and would not be surprised to see volatility return, perhaps as soon as this summer.

Mark Your Calendar for Labor Day Weekend!

Back in 2019, Charles Schwab acquired TD Ameritrade. Your account(s) will be transitioning to the Schwab Alliance platform over Labor Day weekend. This transition is on track to take place by Tuesday, September 5, 2023.

In preparation for this transition, you will be receiving communication from TD Ameritrade and Charles Schwab. I will highlight a few things you need to be aware of.

Key Takeaways:

• Your TD Ameritrade accounts will automatically transition to Schwab Alliance on (or around) Tuesday, September 5, 2023.
• After 9/5/2023, Charles Schwab will serve as your new custodian.
• AWM will have all the same authorizations for trading, fee deduction and payment, and money movements.

Accessing Your Schwab Alliance Account

Starting Tuesday, September 5, you will access your account(s) through Schwab Alliance (schwaballiance.com).

1. If you have a Schwab Login ID and password, there is nothing you need to do. You can log in with these credentials.
2. Need to set up your Schwab Login ID and password? Go to schwaballiance.com and select New Schwab User, then follow the prompts.

AWM Client Portal

Once the TD/Schwab merger is complete, it may take a few extra days for your Schwab accounts to appear in your client portal. We thank you for your patience during this merger.

If you have any questions or concerns, please reach out to us. We will do our best to answer your questions and help however we can.

Sincerely,

Petr Burunov, CFP®
President / Wealth Strategist

The post Client Newsletter 3Q23 appeared first on AWM.

Spring is here and tax season is officially behind us! Let’s dive into the second quarter of 2023.

If you recall from my January newsletter, we have been cautious and on the defense. This remains true, especially as current events unfold.

I also urged you to take on a strategy of emotional clarity. I would love to see you continue to seek out expertise and reflect on your family’s long-term needs and goals.

Investment Update

We added precious metals to your investments in the quarter. Two reasons include:

1. Increasing secular trend overseas of abandoning the dollar and trading in local currencies instead, and
2. Cyclical factor as Fed gets closer to ending the tightening cycle. Precious metals potentially offer diversification from the risk of a declining US Dollar as well as possible resurgent inflation with subdued growth or even recession (stagflation).

Special Topic Q&A: Are my Dollars Safe?

So, what is all this talk about “de-dollarization”?

The US Dollar has been (still is) the world’s leading currency that global central banks use to backstop their economies. Many central banks recognize that their citizens do not trust their own governments. Governments tend directly or indirectly to manipulate their own currencies (for instance, when they spend more money than they earn, nationalize privately owned property). Think of a currency’s value as a vote of confidence (or lack thereof).

Of the world’s major currencies (US Dollar, Euro, UK Pound, Japanese Yen), the US Dollar used to be the currency of choice. Untouched by war with a couple hundred years of legal, fiscal, and economic stability, the US Dollar was a safe haven for people abroad who did not trust their own governments.

Is this the immediate end of the US Dollar? 

The US Dollar still comprises 6 of 10 units of global central bank reserves.  However, the trend is going lower as countries begin to trade with each other in other currencies. Peter Earle at the American Institute for Economic Research cites several recent examples of such deals. China and Brazil will ditch the dollar in favor of yuan-real settlements for trade. India and Malaysia are also shedding dollars in favor of using their own currencies for trade. Talks about developing regional or even a BRICS (Brazil Russia India China South Africa) settlement currency also are developing. In the meantime, foreign central banks continue to add to their gold reserves.

Will this all happen overnight?

Possible but unlikely near-term. Keep in mind that there is (not yet) a new currency alternative that is as liquid and large as the US Dollar. It is said that the total world supply of gold would fit in 2 Olympic-sized swimming pools. None of the other major developed market currencies have enough liquidity or credibility to supplant the US Dollar. The Chinese yuan might be accepted for bilateral trade, but the reality of capital controls and lack of institutional track record impede it (for now) from being the new choice for most central banks. Perhaps a new currency backed by the BRICS might come into play, but not yet.

How might this impact my nest egg?

Regardless of the pace of this process, de-dollarization does have implications. Interest rates in the US are unlikely to decline to levels even 5 or 10 years ago. Foreign demand for US Dollars (and debt) will be less than the past. Either government spending will have to fall, taxes rise, or else interest rates would have to be high enough to attract investor interest to invest in US Treasuries. Potentially, this might also limit upside on US-based assets (stocks) and possibly make foreign-currency assets relatively more attractive to investors.

What are we doing?

We have brought in precious metals into your investments. Over time, they potentially hold value and appreciate in US Dollar terms if these trends continue. While we would not be surprised to see fits and starts (profit taking), any further progress toward debasing the US Dollar as the world’s currency might stoke further demand for alternative currencies.  Precious metals might fit that category.

What about holding physical precious metal?

Our investments focus on the liquid funds that trade daily on a financial exchange and correspond to the price of the underlying precious metal.

Some people feel comfortable holding their precious metal physically.  Collectors love historical coins and have the potential of strong price gains if they hold a rare artifact.

It also entails risks. For instance, you cannot go to most stores and transact in gold or silver. You can only go to a broker (or jewelry exchange shop) to exchange it for dollars with which you could actually transact.

You also should have physical security (safe at a minimum) to ward off potential thieves.

Transaction costs on physical metal can be very high. For instance, basic silver coins in the recent past require you pay a premium of at least 5-12% to the underlying metal in addition to the base price.

We recently heard a quote for physical gold in an IRA with a commission of 8-12% just to buy into it, then the same commission to liquidate. (Imagine what the cost might be if one ever wanted to sell out.)

Our stance has been to seek solutions for our clients that offer targeted exposure with the most transparency and lowest cost possible. That is why we invest the way we do.

Investment Security in Light of Recent Bank Failures

You might have questions in light of headlines about recent bank failures.  (See also the TD Ameritrade site.):

1. How are my investments protected?

Your investments are managed by AWM and are custodied at TD Ameritrade.  Your securities belong to you.  The SEC’s Customer Protection Rule prevents firms like TD Ameritrade from using your assets to finance their own proprietary business except when the client has margin agreements in place.

To be clear, your investments still can go up and down in value depending upon how they are invested.  When we talk about “protection”, this refers to what happens if a financial institution were to fail.

When it comes to cash held in your investment account, we have opted to keep that in an FDIC-insured account (FDIC insurance up to $250,000 per account per client).

2. Isn’t TD Ameritrade like any of the banks that recently failed?

No. Banks can take your deposits and invest them in loans and other securities for their own profit.  Banks fail when depositors pull all their money, but the bank does not have sufficient time to liquidate investments made beforehand.

In contrast, custody banks like TD Ameritrade are prohibited from taking your investments and investing them for their own benefit.

3. Then what is my biggest risk at TD Ameritrade? Do I have any insurance in that event?

The biggest (though unlikely) risk would be major fraud leading to bankruptcy (such as MF Global or FTX) and where client assets go missing.

Even in that extreme event, your investments would still have insurance coverage from SIPC.  You can refer to the TD Ameritrade website link above for more information.  It is noteworthy that in over 50 years of history, investors have recovered 99% of their investments in failed brokerage cases under SIPC supervision.

4. What should I do about my money in the bank?

Presuming your bank is a member of the FDIC, in the event of bank failure, you are insured up to $250,000 per depositor per insured bank, based on ownership category.

Closing Thoughts

We did see some recovery in the early part of 2023, especially compared to 2022, which was brutal to most investments. I do not believe the risk of a recession is gone and the second half of 2023 will likely be very difficult.

As we review each of our client’s portfolios, we keep in mind your individual needs and circumstances in order to help provide stability to your needs and goals.

Sincerely,

Petr Burunov, CFP®
President / Wealth Strategist

The post Client Newsletter 2Q23 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.

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.

Happy Spring! We have a lot to talk about this quarter. Let’s jump right in!

2022 Will Be a Difficult Year

Over the next couple of years, we expect the economy to struggle. We are taking proactive steps to ensure that, as the economy rotates and challenges come and go, each client’s positions are adjusted to fit their individual needs and goals.

If you anticipate any changes to your circumstances in the coming months, please let us know. The better we understand you and your situation, the more appropriately we can adjust your investments.

It’s Up to You to Protect Your Family

Each of you is in a unique situation. Depending on where you fall on the retirement timeline, we can offer some recommendations to potentially help you preserve your assets, grow your investments, and keep up with inflation.

1. Retirement: You Are Retired.

Set aside time to review your Trust documents. In seasons of high inflation and rising prices, you potentially might position your assets to mitigate estate taxes that your heirs might otherwise pay more of.

The key in this stage is income, tax & estate planning.

2. Preparation: You Are Getting Ready to Retire.

As you prepare for your upcoming retirement, ask yourself if your investment accounts are working for you and if your business or real estate holdings are positioned to prepare you for retirement.

The key in this stage is income & tax planning.

3. Accumulation: You Are Establishing a Career.

Establish a good, working budget to understand where your money is going. Think about ways to increase your savings, maximize retirement account contributions, invest in real estate, and/or work on paying down debts.

The key in this stage is budgeting & saving.

Due to higher energy costs, geopolitical turmoil around the world, shortages of fertilizer, and various restrictions on trade between nations, we expect food costs will continue to rise. Some parts of the world might even suffer more supply chain shortages.

We have kept you informed about what we are doing with your portfolios to prepare for these challenging times ahead. Check out this sidebar for ideas everyone should consider to help their family in these inflationary times.

Investment Thoughts (by Petr Burunov & Stuart Quint)

In our last newsletter, I told you that 2022 was likely to be quite different than 2021.  So far, it has.

Both stocks and bonds have declined moderately.  (In fact, bonds have declined slightly more.)

While the economy is cooling off, prices are not.  As a consequence, the Fed for the first time in 3 years started to raise interest rates.  Though we are near historically low-interest rates, the fact remains that bond yields, which used to be notably above inflation, are significantly below.  Controversy exists as to how far the Fed can raise rates without putting the economy into recession.  Yet, inflation has now resurfaced for the first time in decades as a serious potential problem to people’s purchasing power.

Consider the recent news in Germany, Europe’s largest economy.  Supermarkets just announced price increases from 20 to 50% on over 300 products.  While the official excuse is the war in Ukraine, remember that supply chain issues and commodity price hikes had begun well before the end of February. In fact, prices started to go up in the first half of 2021

Closer to home, many of you have noticed higher gasoline prices.  Not only are commodity costs rising, but prices for homes, appliances and even wages are also moving up.  After several decades of modest inflation, we are experiencing an environment more similar to the 1970s.

As mentioned in our previous newsletter, we entered the year moderately cautious about risk.  Stocks looked richly valued, and bonds even more so.  Traditional stocks and bonds might face further headwinds to posting compelling returns while inflation and higher interest rates loom.

Part of your portfolios has been invested in what we call a “diversified” bucket. This “diversified” bucket consists of select alternative investments that are less reliant on traditional stocks and bonds. Their purpose is to add potential stabilization to your portfolio while seeking positive returns.

Examples include precious metals, commodities, and long/short strategies. Precious metals might serve as a hedge either against higher inflation and/or recession.  Base commodities such as energy, agriculture, and metals face supply shortages and have the potential to appreciate in US Dollar terms.  Your long/short manager has the potential to benefit from price dislocations in companies in both rising and falling markets.

Though markets have recovered tremendously from the trough last month, it appears early to declare the coast is clear.  First-quarter earnings could introduce near-term volatility.  Economic data appears to be slowing (jobs, housing market, consumer confidence).  Add in uncertainty surrounding further Fed rate hikes and geopolitics.  We would not be surprised to see further choppiness in markets in the coming months.  Furthermore, you should not be surprised to see further traditional risk being reduced in your portfolios in the coming weeks and months.

Upcoming Changes

Every year there seems to be some form of adjustment made by Congress to impact your retirement. This year is no exception.

Congress already passed several rules to defer RMDs (required minimum distributions) and increase annual contribution limits. Pending a Senate vote, more changes are coming. Stay tuned for future updates.

Final Thoughts

It’s great to have money, but at the end of the day, your bottom line is what counts. Remember: it’s not about how much you make, it’s about how much you keep. This is where planning, savings, and budgeting is crucial.

Plan for the taxes and unexpected circumstances. I want to see you thrive.

Sincerely,

Petr Burunov, CFP®
President / Wealth Strategist

The post Client Newsletter 2Q22 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.