Thoughts and musings from my desk to you.

Navigating Market Volatility: A Perspective for Investors

In recent times, we have witnessed significant market volatility that has understandably shaken the confidence of many investors. It’s important to acknowledge that while no one enjoys seeing periodic losses, these fluctuations serve a vital purpose in the marketplace.

Navigating Economic Cycles: Finding Stability Amidst Crisis

As we discern our crazy economic landscape, it’s important to reflect on the cyclicality of the crises that have shaped the U.S. economy over the decades. From rising energy prices in the 1970s to today’s concerns over tariffs, each period presented challenges and adaptation opportunities.

Oddity or Anomaly? (Segment Ranked #20 in TX)

Once again, Segment ranks among Barron’s Top 1200 Advisors in America, landing in the “Top 20 in Texas” for the second year in a row.

For many reasons, Segment is a bit of an anomaly in the advice business. We just do things a little differently. One of those things is the minimal amount of bonds in our client portfolios. Some explanation for that small allocation is how unattractive bonds were for years, with yields approaching zero. Another reason is our confidence that stocks will outperform over time. Our clients either absorb that confidence or maybe we simply attract clients with a minimal aversion to stock market uncertainty.

The Role of Misaligned Incentives in Economic Recessions

Fear of recession is causing current turmoil in stock prices. Recessions are often precipitated by an abrupt return to reality, a moment when the market corrects itself after a prolonged period of distorted perceptions and misaligned incentives. Historically, we have witnessed how such misalignments can lead to the mispricing of assets, which can ultimately culminate in significant economic downturns.

A Few ETFs You Must Own and 1,000 ETFs You’re Better Off Avoiding

When most people hear “ETF,” their first thought is usually “Index Fund.” For years, ETFs (Exchange-Traded Funds) have been synonymous with low-cost, passive investing. We love passive indexing, and we were early adopters of ETF’s as building blocks for portfolios. However, the reality of the ETF market today is far more complex and diverse as new fund offerings have become prolific. While the traditional index-tracking ETFs remain a staple, the industry has expanded significantly, introducing products that go far beyond simple market replication.

Cash Flow is Not King

We have several clients who use cash flow as the indicator of successful wealth building. I will admit, it does feel good to “clip coupons” and deposit the checks in the bank. Investors who value this metric tend to gravitate to real estate investments because it can generate rents. Real estate is also perceived as “safe” compared to stocks with their more profound price fluctuations. However, to some degree, this perception is often based on real estate market values being hidden from view due to illiquidity, not the fact that the prices are inherently stable. Stability is further in doubt when you consider that most real estate investments are levered.

Why We Don’t Like Mutual Funds

Segment has always run its own strategies. We build portfolios out of individual stocks and exchange-traded funds because they have exceptionally accommodative tax results. What we generally don’t buy is open-end mutual funds. These investment products with five digits in their ticker symbol are typical of what you would find in a retirement account like a 401(k).

Recession and Volatility

For over two years, economists have been predicting a recession. As their timing has proven quite poor, recent market gains were built on the expectations that they were flat-out wrong. Proper perspective is that recent market profits provide ballast to endure all the downside the market can throw at us, rather than letting our risk tolerance ebb and flow. Long-time participants should have plenty of ballast by now. It is the recent new participants who might be victims of downside where they might not have a fair dose of time to build profits to then play with “house money”. This is why we are very slow and methodical with cash when given to us in large lumps. I have been recently squirming with a strong market and the half-cash positions of several clients who recently received life-changing amounts of cash from business sales and other events. It appears reprieve may have arrived.

Estate Tax Considerations

Back in 2017, Congress made changes to the tax code via the passage of the Tax Cuts and Jobs Act (TCJA). One of its provisions raised the Lifetime Gift Tax Exemption, the amount of assets each person can pass to heirs without estate taxation. TCJA raised the exempt amount from $5.49million to $11.18million per person. Due to inflation indexing adjustments, it has escalated to $13.62million per person in 2024.

However, certain concessions were made to get the increased limits passed by the legislature. The most worrisome is the sunset rule, which stipulates that the increased exemption amount will be halved at the end of 2025 if not extended by Congress prior.

So You Can Retire, But Should You?

As investors approach the age of retirement, many of us are faced with a difficult decision: should we retire or continue working? I still enjoy my work, so I have no current plans to retire. So don’t think this musing is prompted by my impending retirement. You can’t get rid of me that easily! For most, this decision is not just about finances or health, but also about our human need for accomplishment and the fear of boredom.