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Episode #76: Fate of the U.S. Dollar The U.S. Dollar has been the global reserve currency since 1944, when the Bretton Woods Agreement solidified the transition from the British Pound to U.S. Dollars. Recently, several clients have asked whether the U.S. Dollar can withstand challenges from growing currencies, like the Chinese Yuan, or from digital currencies. In this episode, we will review the history of currency markets, along with a deep dive into the strength of the U.S. Dollar compared to other major global currencies. Want more Flourish Insights? Check out our insights blog at https://www.flourishinsights.com. If you're enjoying the show, please rate and review it on Apple Podcasts or Alexa! EPISODE TRANSCRIPT Hi everyone, Jay Pluimer here with Flourish Insights. As the director of investments at Flourish Wealth Management, I take pride in providing our clients, colleagues, and friends with resources and information that can help them make strategic and effective choices regarding their investments. Did you know we have an Alexa Skill? To listen on your Alexa device, just say, “Alexa, play Flourish Insights.”   Today, in response to client questions, we are discussing the Fate of the US Dollar.   I appreciate when clients ask questions that challenge whether or not the foundations of the current market are sustainable in the future. Some of those questions relate to US versus International investments or the opportunities for a portfolio with 60% in Stocks and 40% in Bonds to earn an attractive return. An excellent example of client questions popped up recently when a couple different clients asked questions about the sustainability and reliability of the US Dollar as the global default currency. These questions challenged whether or not the US Dollar could withstand challenges from growing currencies like the Chinese Yuan or from digital currencies. It was a helpful opportunity to review the history of currency markets along with a deep dive into the strength of the US Dollar compared to other major global currencies. The US Dollar has been the global reserve currency since 1944 when the Bretton Woods Agreement solidified the transition from the British Pound to US Dollars. This was a reflection of the balance of power for the United States as the largest economy in the world in the 1940s, a status that the US continues to hold. Although the definition of a reserve currency can be complicated, the most effective way to explain this status is that countries selling goods and services to the US and are paid in dollars, meaning that the more business a country does with the US the more dollars they have in their Treasury. For example, China is the second largest economy in the world and a major trade partner of the United States, resulting in China holding over 1 Trillion US Dollars. The result is that it would be very difficult for the Chinese Yuan to replace the US Dollar as the global currency because that would significantly reduce the value of one of the largest assets sustaining the value of their own currency. The US Dollar represents about 60% of global foreign exchange reserves. The closest competitor is the Euro at 20% and no other currency represents more than 6%. A primary reason for the US Dollar to maintain its status as the global reserve currency is that it has consistently represented between 60% and 66% of global foreign exchange reserves, dominating all competitors by a significant margin. This consistency is impressive considering the introduction of the Euro as a global currency in 1999 and the entry of the Chinese Yuan in 2010. In addition, the US Dollar is valued relative to other currencies while the Chinese Yuan has an exchange rate that is controlled by the Chinese Government, an arrangement that has created complications for currency markets on a periodic basis over the years. A final aspect to consider for a reserve currency is the percent of global transactions that take plac

Episode #75: The 2022 Bear Market is Over The bottom of the 2022 bear market happened in mid-October when the market was down 25% on a year-to-date basis, and it was the second time the market hit a 25% dip last year, which is actually better than the average bear market loss of 34%. There has been upward momentum since then, and Jay Pluimer discusses the specifics in this optimistic episode. Want more Flourish Insights? Check out the Insights Blog at https://www.flourishinsights.com. If you enjoyed this episode, please write a review of this podcast on Apple Podcasts or Alexa. EPISODE TRANSCRIPT Hi everyone, Jay Pluimer here with Flourish Insights. As the director of investments at Flourish Wealth Management, I take pride in providing our clients, colleagues, and friends with resources and information that can help them make strategic and effective choices regarding their investments. If you’ve been enjoying the show, be sure to subscribe on Apple, Spotify, Google, or wherever you get your podcasts, so you’ll never miss an episode. Today, we are discussing what measures are used to determine that The 2022 Bear Market is Over.   The technical definition of a Bear Market for Stocks is a loss of 20% or more, while the definition of a Bull Market for Stocks is a gain of 20% or more. Because bear markets frequently decline by more than 20%, the technical end of a bear market frequently happens before the market has made a full recovery. In addition, the math of bear and bull market cycles don’t equate to a full recovery. For example, a market starting at $100 with a 20% drop will have a value of $80, but a gain of 20% from $80 results in a value of $96 which meets the bull market recovery but doesn’t mean the investor has made all of their money back. The bottom of the 2022 bear market happened in mid-October when the market was down 25% on a year-to-date basis. That was the second time the market hit a 25% dip last year, which is actually better than the average bear market loss of 34%. There was a mini-rally for stocks in the latter part of the year as the S&P 500 Index ended with a loss of 19%. The market has continued to gain ground over the first 5-plus months of 2023, leading to a 20% gain from the mid-October 2022 bottom and the official end of the 2022 bear market. There have been a few different factors supporting the stock market recovery, some of which are more favorable than others. The least positive aspect of the 2023 recovery is the dominance of Big Tech stocks, particularly stocks like Nvidia and Apple with large exposure to Artificial Intelligence. This has led to what’s called a narrow or shallow recovery because a small number of stocks have driven the market to a 20% recovery, meaning that a large number of companies have not made meaningful progress to recoup their losses from 2022. You may recall references to so-called FAANG stocks which referred to Facebook, Apple, Amazon, Netflix and Google, the Big Tech stocks that drove market performance for most of the 2010s. According to Goldman Sachs, the new acronym for Big Tech is MAGMA which stands for Meta (the new brand of Facebook), Amazon, Google, Microsoft, and Apple. These 5 stocks currently represent 24% of the S&P 500 Index and have represented an outsized percentage of stock market returns in 2023. For example, MAGMA stocks are up 42% year-to-date while the other 495 stocks in the Index are up a combined 2%. This lack of market depth is definitely a concern and will play a big role in determining whether or not the new bull market will be able to sustain itself. The other key drivers of the stock market recovery reflect optimism that (1) we are getting closer to the end of high inflation and that (2) the Federal Reserve will begin to cut interest rates at some point in 2023 or early 2024. We think the market might be early in the expectations for Fed rate cuts and that there is actually a good chance that there is at least one more

Episode #74: Emotional Roller-Coaster Ride With the last market all-time high occurring more than 450 days ago - and another not yet in sight - the stock market has been quite the emotional rollercoaster for investors. Looking at history, though, shows that time favors the patient investor. Jay Pluimer shares tips on how to weather the ride back to the top in this optimistic episode. Always check back next week for more Flourish Insights with Jay Pluimer and don't forget to check out our insights blog at https://www.flourishinsights.com. Enjoying the show? Please write a review of this podcast on Apple Podcasts or Alexa! Episode Transcript: Hi everyone, Jay Pluimer here with Flourish Insights. As the director of investments at Flourish Wealth Management, I take pride in providing our clients, colleagues, and friends with resources and information that can help them make strategic and effective choices regarding their investments. If you’ve been enjoying the show, be sure to subscribe on Apple, Spotify, Google, or wherever you get your podcasts, so you’ll never miss an episode. Today, we are discussing why investing in the stock market leads to an Emotional Roller Coaster Ride.   The last time the stock market hit an all-time high was on January 3rd of 2022, which is over 450 days ago. It probably feels like longer for most investors, and there doesn’t seem to be much hope on the near-term horizon that we will experience another market peak any time soon. Welcome to the emotional roller coaster ride called the Stock Market! There have been 11 Bear Markets with a drop of over 20% since the mid-1950s. The average stock market loss during those downturns has been a painful 35% and Bear Markets have lasted an average of 14 months. In addition, it has generally taken over 3 years for a market to exceed the previous all-time high through a Bear Market. Those are some scary statistics and are a big reason why investors generally have a much more vivid memory of the fall down a roller coaster than the slow trip to the prior peak. To brighten the mood a little, the stock market has had positive returns over 100% of the 20-year time periods and 95% of 10-year time periods. That means time is definitely in favor of the patient investor who keeps their money in the stock market for longer periods of time. Five-year returns have been positive over 88% of the time and 3-year returns have been positive over 84% of the time, meaning that even medium-term investors have a very good chance of making money on their investments. However, the numbers become closer to a coin flip when looking at 1-day stock market returns which are positive around 55% of the time. One-month returns aren’t much better at 63% showing that investors will experience a lot of unfavorable daily losses on the way to experiencing a positive 20-year return. I think it can be helpful to compare the emotional ups and downs of the stock market to a roller coaster ride because there are significant similarities between the two. For example, 100% of investors make money over 20-year time periods and close to 100% of people who ride roller coasters are alive at the end of the ride. In addition, the downturns tend to produce screams and a desire to shut your eyes until the bad part is over. The ride to the top of the roller coaster is generally less exciting or memorable, except that part toward the end when the peak is approaching, which is also where the anxiety starts to build before everything turns downward. Those last couple of sentences were about the stock market but are hard to differentiate from the description of a roller coaster ride. I’m afraid of heights and am reluctant to ride roller coasters, but no matter how high my anxiety spikes during the ride I feel safe knowing I’ll get through the ride. I encourage investors and clients to embrace a similar approach when looking at the daily, weekly, or monthly ups and downs in the stock market. It

Episode #73: If it Bleeds, it Leads Media companies are in the business of making money, and their profit motives tend to supersede other agendas. However, we may have reached a saturation point when it comes to negative financial news stories, with some investors having a skewed view of market performance that is not based in reality. It may be time for fewer flashy headlines and more context, and that's what we'll examine in this episode. Always check back next week for more Flourish Insights with Jay Pluimer and don't forget to check out our insights blog at https://www.flourishinsights.com, Please write a review of this podcast on Apple Podcasts or Alexa EPISODE TRANSCRIPT Hi everyone, Jay Pluimer here with Flourish Insights. As the director of investments at Flourish Wealth Management, I take pride in providing our clients, colleagues, and friends with resources and information that can help them make strategic and effective choices regarding their investments. Did you know we have an Alexa Skill? To listen on your Alexa device, just say, “Alexa, play Flourish Insights.”   Today, we are discussing the role of media and their commitment to the premise that If it Bleeds, it Leads.   This will not be an anti-media podcast episode. However, the reality is that the vast majority of media companies are in the business of making money. That fact is also true for social media companies that amplify messaging and storylines from mainstream media. The profit motive supersedes any potential political agendas for media companies, in my opinion, although some stories may be skewed to appeal to certain audiences. It has been startling to meet with a large number of Flourish clients over the past few months who are honestly surprised to see that their accounts have positive returns in the first few months of 2023. The stock and bond markets have both been up pretty consistently through the first 4 months of the year, including parts of the market that have done poorly over the past years like Emerging Markets and International Stocks. Although I don’t expect the media to provide a fair and balanced approach to all of their news stories, the emphasis on negative storylines may have reached a saturation point when investors are no longer aware that they are making money. For example, I was watching the news while getting ready for work in late February when a story tease before a commercial break stated “don’t check your 401k statements”. That statement caught my attention because I wasn’t aware of a significant market dip over the past few days, so I stopped what I was doing to look at the latest financial news stories and market movements, all of which were positive for the week. I was motivated by the tease to stick around for the news story which basically summarized that 2022 was a bad year for Stocks and Bonds, noting that globally balanced portfolios with around 60% in Stocks and 40% in Bonds had one of their worst years on record. All of that information was correct, but it wasn’t any more relevant in late February than it was at the beginning of the year and there was no mention during the news story about stock markets performing well to start the year. In addition, if I was tempted to look up market performance by watching the news story, then I can only imagine how many other people did the exact opposite of the tease and checked their 401k statements that morning. My conclusion was that the story was mostly accurate while leaving out any information about positive trends, but it wasn’t “news” from the standpoint that the information wasn’t new. The fact is that negative storylines about bank failures or high mortgage rates or growing credit card debt can be accurate, but need more context than is being provided by most media companies to fully understand the story that is being presented. Leading a newscast by showing logos of local banks in a story about bank failures is designed to feed

Episode #72: "Mr. Worldwide" is Back For the past 14 years, U.S. stocks have outperformed international stocks by a wide margin. However, things have begun to change over the last several months. Although it’s too early to tell at this point whether or not this trend change is sustainable, there are reasons to favor International stocks in the current market environment. Always check back next week for more Flourish Insights with Jay Pluimer and don't forget to check out our insights blog at https://www.flourishinsights.com Please write a review of this podcast on Apple Podcasts or Alexa Episode Transcript: Hi everyone, Jay Pluimer here with Flourish Insights. As the director of investments at Flourish Wealth Management, I take pride in providing our clients, colleagues, and friends with resources and information that can help them make strategic and effective choices regarding their investments. If you’ve been enjoying the show, be sure to subscribe on Apple, Spotify, Google, or wherever you get your podcasts, so you’ll never miss an episode. Today, we are discussing why “Mr. Worldwide” is Back.   For pop music fans, the title “Mr. Worldwide” is immediately associated with the artist named Pitbull. I like his music because it incorporates a global beat and brings a lot of positive energy. It’s also fortunate that Pitbull has collaborated with a large number of other music stars because that brought a lot of depth to his music. He gave himself the title “Mr. Worldwide” based on the premise that his songs incorporated themes and genres from around the world, that he toured the world performing his music, and that as part of an immigrant family growing up in the United States Pitbull represents the American Dream of success that is generally shared around the world. I promise that is the end of my efforts to take a deep dive into pop music culture! Today’s podcast is really about the positive returns from International Stock investments which are affirming the desire to have a globally diversified investment portfolio. We frequently reference a chart in client meetings from JP Morgan showing that US Stocks have outperformed International Stocks for over 14 years with a performance advantage of over 275%. It has been difficult to justify global diversification over that time period because US Stocks were providing better performance almost every year, and frequently with significantly better returns. However, International Stocks have flipped the script over the past few months. The MSCI Europe Asia Far East (aka EAFE) market Index is up over 23% since November 1st of 2022 compared to 7% for the S&P 500 Index. That is the largest performance differential between these two stock market indexes over the past 15 years and the first that has demonstrably favored International stocks. Although it’s too early to tell at this point whether or not this trend change is sustainable, there are reasons to favor International stocks in the current market environment. The past 10+ years featured low inflation and historically low interest rates, an environment that favored Growth-oriented investments. Technology and Communications stocks represent 30% of the S&P 500 Index compared to just 15% for the MSCI EAFE, so a favorable environment for Growth stocks will consistently favor US markets. However, a period with moderate inflation and moderate interest rates will favor stocks that have consistent revenues, profits, and favorable valuations (also known as Value stocks). The EAFE Index has a 47% allocation to Value sectors like Industrials, Financials, Energy, and Materials compared to 27% for the S&P 500 Index. Assuming the era of free money is over, there are reasons to add exposure to Value investments. A sustained period of moderate interest rates is favorable for Financial Services companies like banks because they will be able to generate more revenues from loans with higher interest rate payments. In

Episode #71: The Debt Ceiling Question The U.S. Government hit its legal debt limit of $31.4 trillion in debt on January 19, 2023, and we're getting closer and closer to June - when the 6-month extension expires. So, will Congress take measures to reset the limit? Will we have another close call? What does it all mean for the markets? I answer these questions and more in this episode. Want more Flourish Insights? Check out our insights blog at https://www.flourishinsights.com EPISODE TRANSCRIPT: Hi everyone, Jay Pluimer here with Flourish Insights. As the director of investments at Flourish Wealth Management, I take pride in providing our clients, colleagues, and friends with resources and information that can help them make strategic and effective choices regarding their investments. If you’ve been enjoying the show, be sure to subscribe on Apple, Spotify, Google, or wherever you get your podcasts, so you’ll never miss an episode. Today, we are discussing The Debt Ceiling Question.   An interesting comment about recording this episode in late February is that over 95% of the articles I looked at about the debt ceiling were dated in mid- to late-January. That’s odd because we are a month closer to running out of money but conversations about the debt ceiling are no longer grabbing headlines or being featured in doom-and-gloom articles. Just a guess, but debt ceiling articles will become all rage again and grabbing attention at some point in June because that’s when the debt ceiling will be approaching a final expiration date. The US Government hit its legal debt limit of $31.4 trillion in debt on January 19th, 2023. By definition, the debt ceiling sets the limit that the US Government can borrow to keep the country running. The US has used debt ceilings since 1917 to cap government spending, although its been a very flexible cap that has been raised or suspended 102 times over the past 104 years. The US can continue to spend and borrow money for a few months due to “extraordinary measures” by the Treasury Department and the Federal Reserve, but those can’t keep the government afloat for more than about 6 months. Congress is in charge of the debt ceiling and is responsible for resetting the debt limit as needed. The last extension took place with minimal fanfare back in 2021 when Covid relief spending still had bipartisan support. In contrast, partisanship is all the rage in Washington DC these days as both sides of the political aisle are using the debt ceiling topic as a beach ball to whack back and forth in the Halls of Congress. The odds are in favor of a deal happening at some point over the next few months because there has never been a time when the US failed to increase the debt ceiling or defaulted on debt payments. The closest call to a default took place in 2011 when negotiations concluded just 2 days before the US was going to run out of money. The close call resulted in the first and only downgrade for the US Credit Rating from AAA to AA+, plus the US Dollar sold off and the stock market dropped by over 16%. An uncomfortable similarity between now and 2011 is that we had the exact same political configuration then as we do today with a Democratic President and Senate paired with a Republican majority in the House of Representatives. Many analysts and commentators have expressed surprise that the US Stock Market is up over 8% through the first 7 weeks of the year with the debt ceiling crisis looming over the markets. Without getting into the weeds of political discourse in Washington DC, both parties have legitimate arguments about how the US Government should or shouldn’t spend money in the future. Although there don’t seem to be any adults in the room to help politicians put their egos on the back burner and negotiate in good faith at the moment, there is hope that fear will eventually provide the motivation necessary for a solution to take place. And there is good reason for politic

Episode #70: Dividends Reward Discipline The traditional approach to dividends is that they are an important supplement to generating income and can be used to support a steady withdrawal rate in retirement. An updated approach is that dividends are an important aspect of total return and help grow a portfolio through reinvestment. We’re exploring this topic today, using historical data from the S&P 500 to illustrate important points for investors. Always check back for more Flourish Insights with Jay Pluimer and don't forget to check out our insights blog at https://www.flourishinsights.com. EPISODE TRANSCRIPT Hi everyone, Jay Pluimer here with Flourish Insights. As the director of investments at Flourish Wealth Management, I take pride in providing our clients, colleagues, and friends with resources and information that can help them make strategic and effective choices regarding their investments. Did you know we have an Alexa Skill? To listen on your Alexa device, just say, “Alexa, play Flourish Insights.”   Today, we are reviewing the impact dividend income has on long-term performance by stating that Dividends Reward Discipline.   Dividends can be a surprisingly controversial discussion topic for investors and investment professionals. The traditional approach to dividends is that they are an important supplement to generating income and can be used to support a steady withdrawal rate in retirement. An updated approach is that dividends are an important aspect of total return and help grow a portfolio through reinvestment. Basically, dividends can be used to support distributions or be reinvested for long-term growth. In this episode, we will focus on the benefits of reinvesting dividends as part of a disciplined approach for long-term investors. I will be referencing information and statistics for the S&P 500 Index throughout this episode, so this is a quick reminder that the S&P 500 measures performance for the largest 500 companies on the US Stock Market. The companies in the S&P 500 change over time, based on market movements, and can be significantly different over time. This Index has the most reliable historical data and is a good reflection of US Large Cap stocks at any point in time. Although there are other good indexes to capture historical performance for this part of the market, the data I will reference over the next few minutes is all for the S&P 500. From 1928 to the end of 2022 the stock market increased by 21,500%, which leads to an annualized return of 5.8%. That is the return for the price of the Index and doesn’t include reinvested dividends. Although 5.8% is a solid return, the S&P 500 Index returned 9.9% annually when dividends are reinvested and included in the total return calculation. In other words, reinvesting dividends resulted in a return that was almost 70% higher over a 95-year time period. My initial reaction to these numbers was surprise because I did not think dividend payments of a few percentage points a year would add up to such a big difference in returns. The gap is huge when comparing the growth of $1 from 1928 with price increases alone growing to $216 compared to $7,500 with dividend reinvestments. This is where the word discipline comes in because a significant part of the performance difference is due to compounding. Frequently referenced as the 8th Wonder of the World, a quote that is most often attributed to Albert Einstein, compounding reflects the impact of dividend payments from 80 or 90 years ago that are allowed to grow over time. The disciplined part is to let the dividends continue to grow instead of cashing them out to cover short-term spending needs. The longer the time period an investor has, the more compounding will work in their favor. In fact, once the historical performance data is broken down into components it becomes clear that dividends are not a magical source of investment returns; instead, the point is that leaving money in the ma

Episode #69: “Past Performance is No Guarantee of Future Results” This common client disclosure is typically meant as a warning that positive results are not always sustainable, but what if we look at it from a different angle? Just because 2022 was a bad year for the markets, it doesn't necessarily mean the same will happen in 2023. So, let’s talk through what we might expect from a typical 60/40 “center of gravity” portfolio this year. This common type of diversification is meant to provide long-term upside growth with downside protection from bonds. What will it produce for investors in 2023? Listen in for my take. Enjoying the show? Please write a review of this podcast on Apple Podcasts or Alexa - thanks! EPISODE TRANSCRIPT: Hi everyone, Jay Pluimer here with Flourish Insights. As the director of investments at Flourish Wealth Management, I take pride in providing our clients, colleagues, and friends with resources and information that can help them make strategic and effective choices regarding their investments. Did you know we have an Alexa Skill? To listen on your Alexa device, just say, “Alexa, play Flourish Insights.”   Today, we are reviewing performance of a diversified portfolio over the past year using the compliance disclosure that “Past Performance is No Guarantee of Future Results”.   The title of this podcast refers to a common compliance disclosure about investment results. Typically the disclosure is a warning that the amazing performance results being quoted in an advertisement or client report are not necessarily sustainable. In this podcast we are flipping that concept on its head with a reminder that just because 2022 performance was bad, it doesn’t necessarily mean the same thing will happen in 2023. I will be referring to a diversified portfolio with 60% in Stocks and 40% in Bonds or Cash, reflecting a common mix of investments to provide long-term upside growth from Stocks with downside protection from Bonds. Investment legend Peter Bernstein liked to call a 60/40 portfolio “the center of gravity” for long-term investors. That’s because the 60% allocation to stocks would produce returns not much lower than a 100% stock position, while the 40% in Bonds and Cash usually buffered the sharp declines that stocks can deliver in down years. According to an article in The Wall Street Journal by Jason Zweig, a typical 60/40 portfolio lost about 15% in 2022, which would be the 4th worst year ever for that portfolio approach. The biggest driver of bad market returns in 2022 was rising interest rates, a theme that caused bond investments to have their worst year ever. Although bonds have historically reduced risk and offset stock market losses, we just experienced a bond market that should only happen once every 130 years. So why are we taking the approach that the historically bad returns for a 60/40 portfolio in 2022 don’t necessarily predict similar returns in 2023? There continue to be questions about additional interest rate hikes by the Federal Reserve along with valid concerns about an economic recession. However, for the first time in recent memory bonds are yielding over 4%. That yield provides a lot of cover for falling bond prices in a rising interest rate environment, along with more confidence that we won’t experience a year with double-digit bond losses like 2022 again regardless of decisions by the Federal Reserve. The outlook for stocks is uncertain for 2023, with optimistic projections reflecting upside opportunities in the second half of the year. A combination of positive economic growth rates, improving corporate earnings, and low unemployment with rising wages creates a strong foundation for a sustained stock market recovery at some point over the next few years. However, even if stocks continue to struggle in 2023, we should not expect a double whammy from bonds leading to positive return projections. There are still no guarantees that we will ha

Episode #68: 2022 - A Year of Hard Lessons Much of 2022 gave us market events that had a negative impact on performance - and created headlines focused on short-term market movements. However, long-term investors can learn a lot from the past 12 months, too. In this episode, we’ll review stats and facts with an eye to the future to help you make smart investment decisions in 2023 and beyond. Always check back next week for more Flourish Insights with Jay Pluimer and don't forget to check out our insights blog at https://www.flourishinsights.com Please write a review of this podcast on Apple Podcasts or Alexa EPISODE TRANSCRIPT: Hi everyone, Jay Pluimer here with Flourish Insights. As the director of investments at Flourish Wealth Management, I take pride in providing our clients, colleagues, and friends with resources and information that can help them make strategic and effective choices regarding their investments. If you’ve been enjoying the show, be sure to subscribe on Apple Podcasts, Spotify, Google Podcasts, or wherever you get your podcasts, so you’ll never miss an episode. Today, we are discussing 2022 – A Year of Hard Lessons.   There were a lot of historic market events that took place during 2022. Although most of those events had a negative impact on performance on client account values, long-term investors can learn a lot from the past 12 months. I prefer to avoid using terms like “unprecedented” or “historic” in client conversations because they tend to put a lot of emphasis on short-term market movements and feed into mass media storylines. However, a year like 2022 had so many different things happen that either had never happened before or hadn’t happened in the same way that there were a lot of learning opportunities. My goal with this podcast episode is to share some of the stats and facts from 2022 with an emphasis on what we can learn to help with future investment decisions. Stocks and Bonds both fell by double digits in 2022. It’s rare for both markets to lose money at the same time, just 4 times in the past 100 years, but this was the first time ever when Stocks and Bonds both lost over 10% in the same year. The lesson is that Bonds are an important tool to decrease portfolio volatility, with the caveat that the diversification didn’t work in a rapidly rising interest rate environment. The Federal Reserve wanted the Stock market to fall. Although the primary target for Fed rate hikes was to reduce inflation, a preferred side-effect was to reduce stock market valuations after hitting record highs in 2021. There were multiple Federal Reserve Governors who went on the record talking about the Stock market, noting that falling stock markets would reduce wealth and decrease consumer spending. I don’t recall a situation where the Fed targeted stocks in this way, so it’s important to learn how they view stock market investments. Mortgage rates doubled and then some last year. Mortgage rates hit historic lows in 2021 and supported a red-hot housing market where prices were increasing at an unsustainable rate. I’m sure we all remember stories of houses selling at prices well above ask, all-cash deals, and buys without an inspection (or even seeing the house in-person). Mortgage rates of 7% or more in 2022 sucked the air out of demand for home purchases and took a big bite out of home prices. It makes sense that a rising interest rate environment would significantly increase mortgage rates, but the impact on the housing market could be felt throughout 2023 and beyond if mortgage rates stay above 5% for an extended period. Cryptocurrencies were not an inflation hedge. Although I am on record as a crypto skeptic, I was open to the premise that they were an uncorrelated asset that wouldn’t be affected by rising Fed interest rates. The premise was that the various cryptocurrencies were independent of the Federal Reserve, government spending, and inflation. Unfortunately fo

Episode #67: Bonds Aweigh There are two major questions many investors are asking with regard to the bond market these days, and we’ll examine both in this episode. We’ll also discuss the impact of inflation, provide historical context, and share the Flourish Wealth Management approach to client portfolios within this context. Want more Flourish Insights with Jay Pluimer? Check out our insights blog at https://www.flourishinsights.com If you're enjoying this podcast, please write a review of this podcast on Apple Podcasts or Alexa EPISODE TRANSCRIPT Hi everyone, Jay Pluimer here with Flourish Insights. As the director of investments at Flourish Wealth Management, I take pride in providing our clients, colleagues, and friends with resources and information that can help them make strategic and effective choices regarding their investments. If you’ve been enjoying the show, be sure to subscribe on Apple Podcasts, Spotify, Google Podcasts, or wherever you get your podcasts, so you’ll never miss an episode. Today, we are discussing the state of the bond market while putting the bad performance from the first half of 2022 into context. When interest rates go up, bond prices go down. The price impact can be particularly painful when bond yields are at historically low levels and can’t provide much of an offset. This has been the story for bond markets in 2022 as interest rates have risen at a staggering pace on the backs of high inflation expectations and aggressive interest rate hike policies from the Federal Reserve. It's important to note that although we will be focused on the US Bond Market in this episode, 40 countries are currently raising interest rates in efforts to fight high global inflation rates, meaning we are not alone with this problem and there is no place to hide from the bad environment. Bond prices have been falling across the spectrum, hitting corporate and municipal bonds at the same time while causing the worst returns in over 40 years. As of June 30th, UltraShort Bonds had lost 3%, Short-Term Bonds dropped 7%, Core Bonds were down 10%, and High Yield Bonds were down over 14%. This is the first time since 1994 that stocks and bonds have both lost money at the same time. These dramatic losses raise a couple questions. The first question is whether or not we are in a Bond Bear Market. We all know that a 20% drop in the Stock Market is the definition of a Bear Market for stocks, but there isn’t a similarly clear definition for bonds. Part of the reason we don’t have a definition for bonds is that they have been in a Bull Market for the past 40 years during a mostly declining interest rate environment, plus it’s extremely rare for bond investments to fall that much. If a 10% loss for long-term bonds and a 5% loss for core bonds define a bear market, then we have definitely exceeded those benchmarks. The last broad-based bear market for bonds occurred from 1960-1981, during a period of high inflation in the US. The yield on a 10-year US Treasury rose from 3.9% to 15.8% during that time. Since bond prices fall when interest rates rise, we would expect the total return on the 10-year Treasury note to have been abysmal during that period. In fact, while annual returns ranged from -5.4% to 18.3%, the average annualized return during this period was 4% because as interest rates rose, income and principal payments could be reinvested at higher rates and offset the impact of price decreases. The second question is whether or not now is a good time to buy into the bond market. We have been encouraging clients with cash on the sidelines to add stock exposure while the market is on sale by 20%, but we are not as optimistic about bonds at the moment. The first consideration is that the Federal Reserve is not done raising interest rates, so the yield curve could continue to be a headwind for bond investors. In addition, core and long-term bond rates have not moved up in tandem, with short-term rat

Episode #66: Recession-ish The U.S. economy shrank in the first two quarters of 2022, and we met the historical definition of a recession. However, there is an ongoing debate about whether we’re really in one. So, are we in a recession? Is there a soft landing somewhere in our future? Or are we occupying an in-between space at the moment? Tune in as we discuss all this and more. Always check back next week for more Flourish Insights with Jay Pluimer and don't forget to visit our insights blog at https://www.flourishinsights.com Are you enjoying this podcast? Please write a review on Apple Podcasts or Alexa! EPISODE NOTES Hi everyone, Jay Pluimer here with Flourish Insights. As the director of investments at Flourish Wealth Management, I take pride in providing our clients, colleagues, and friends with resources and information that can help them make strategic and effective choices regarding their investments. Did you know we have an Alexa Skill? To listen on your Alexa device, just say, “Alexa, play Flourish Insights.” Today, we are discussing if we are in a recession, if there is a soft landing in our future, or if we’re somewhere in between in a Recession-ish environment. The US economy shrank at an annualized rate of 0.9% during the second quarter after a 1.6% decline in the first quarter. Two straight quarters of declining Gross Domestic Product, or GDP, is the historical definition of a recession, but there is a debate whether we are currently in a recession or not. The official decision about a recession is made by the National Bureau of Economic Research who has rejected the historical definition. Instead, a recession is a significant decline in economic activity that is deep, broad, and lasts for more than a few months. For example, the US economy went into recession during March and April of 2020 during the COVID shutdown, which we all felt in real time but wasn’t official until the end of the year when the National Bureau of Economic Research made the declaration. In addition to declining economic activity, we have also been living with record high inflation. The most recent headline inflation rate of 9.1% was a new record. Despite those somber headlines, personal consumption increased during the second quarter while the economy added over 1 million jobs for the second quarter in a row. In addition, unemployment is at a historically low rate of 3.6% and wage growth continues. Regardless of our recession status, we are definitely facing an economic crisis. An analogy I will borrow from economist Michael Lebowitz is that we have a trolley car problem. The scenario is that an unstoppable trolley car is barreling down the track. As the switchman, you stand at the junction where the track branches and you must choose which path the trolley will follow. Unfortunately, people are tied to both sets of tracks, making the decision incredibly difficult and without a clear “best” option. That’s basically the situation for the Federal Reserve, choosing between persistently high inflation and rate hikes that could trigger a recession. Increasing short-term interest rates is designed to decrease consumer demand while reducing prices. Successfully finding a path where rising interest rates slow the economy without creating a recession is called a soft landing. There have been almost 15 recessions since World War II and more than two-thirds of the recessions were caused by the Fed raising interest rates faster than the economy could handle. At the same time, the other third of the time the Fed was able to reduce inflation with minimal negative impacts on GDP and unemployment. As of the end of July, the Fed has raised interest rates four times in 2022, going from basically 0% to 2.25% with another 1% priced into the market for additional hikes this year. When asked to share his thoughts about the chances the Federal reserve can fight inflation without causing a recession, Fed Chair Jay Powell stated “Th

Episode #65: Bear Hunting We hit a milestone in mid-June when the stock market settled into Bear Market territory by dropping over 20% from its highs. Though it wasn’t unexpected - or a market anomaly - it’s still painful for investors. In this episode, we will be discussing what brought us into Bear Territory, what it will take to recover, and what timelines might be involved. Always check back for more Flourish Insights with Jay Pluimer and don't forget to check out our insights blog at https://www.flourishinsights.com! Please write a review of this podcast on Apple Podcasts or Alexa EPISODE TRANSCRIPT Hi everyone, Jay Pluimer here with Flourish Insights. As the director of investments at Flourish Wealth Management, I take pride in providing our clients, colleagues, and friends with resources and information that can help them make strategic and effective choices regarding their investments. Did you know we have an Alexa Skill? To listen on your Alexa device, just say, “Alexa, play Flourish Insights.”   Today, we’re going Bear Hunting.   We hit a milestone in mid-June when the stock market settled into Bear Market territory by dropping over 20% from its highs. The markets flirted with bear territory in late-May before recently exceeding that milestone. The NASDAQ 100 Index of Technology and Communications stocks has been in Bear Market territory for a few months, as just 8 stocks, all of which are in the NASDAQ Index, have generated about half of the losses in the S&P 500 Index for the year. In today’s episode of Flourish Insights, we will be discussing what brought us into Bear Territory, what it will take to recover, and what timelines might be involved. Bear Markets are more typical than we might initially think. Each one is painful in its own way, but Bear Markets happen about every 6 years. Market dips often happen after periods of sustained gains, followed by a sharp decline like we experienced in 2018 (trade war with China) and 2020 (COVID crisis). The primary driver of the current bear market is Inflation. Although our economy continues to grow, inflation is slowing everything down and seems to be shifting into a more permanent – and scary – trend. The sharper the market drop, in most cases, the quicker the recovery. The Federal Reserve has shifted into a more aggressive mode in an effort to decrease inflation, raising rates by 75 basis points during the most recent meeting with questions about whether or not they will raise by a similar level in late July. In the meantime, we are receiving negative economic data as manufacturing and service growth rates are coming in below expectations, new home sales rates have plunged due to higher mortgage rates, and consumer confidence has dropped to its lowest level in over 40 years. It's important to reiterate that a Bear Market and a Recession don’t always happen at the same time and can take place independent of one another. We don’t know if we are currently in a recession at the moment, as that determination is usually made a few months after the fact. However, stock market activity reflects expectations for the future so many analysts have been predicting that the Bear Market is predicting an upcoming Recession. The bad news is that the bear market isn’t over, and the market could continue to decline this summer. But the good news is that expected returns for the market to recover its losses are pretty attractive. The S&P 500 is currently down around 23%, meaning it would need to rise about 30% to breakeven. If it takes two years to make up that lost ground that would mean annualized returns of 14%, while a three-year recovery means 9% annual returns. There are different types of Bear Markets, each of which reflect different conditions that led to the market dip along with a variety of factors that could contribute to the eventual recovery. The “easiest” form of a Bear Market is called Short and Shallow, similar to what we experienc