Perspectives

Is It Time To Reconsider Your Investment Draft? Reflections On Superbowl Fifty-Eight

Investment Perspectives: Q1, 2024

 

Cory Baer

Cory Baer

Chief Business Development Officer, Founder

Cory Baer is the Chief Business Development Officer for Strait & Sound. In this role, he fulfills a dual mission. First, he serves clients by ensuring that they have the best possible financial plan to achieve their long-term goals, particularly complete financial independence. Second, he also serves as an ambassador of the Strait & Sound brand by introducing the firm to the larger community and select strategic partners.

Superbowl fifty-eight was a nail-biter. Two of the best teams in the NFL duked it out to the very end. It took overtime and a blown coverage play for the Kansas City Chiefs to finally emerge triumphant over the San Francisco 49ers. But the contest was up in the air, quite literally, until the very last second. 

As I’ve been reflecting on this game, I cannot help but see parallels between the NFL and investing. How so? A championship ring is the end-result of a very long set of choices. But everything starts with the draft. Each player is selected to do something unique for the team, like kick field goals, throw passes, run the ball, block or tackle.

The same is often true of investment portfolio construction. Each investment is selected for a specific reason, to achieve a specific end. But just as not every player on a football team is a superstar, not every investment is a superstar either. Does this mean you should be considering trading away your weaker performers? Is this the time to reconsider your draft? Here are my perspectives.

 

An NFL Analogy Extended A Bit Further

Before I share my perspectives about the coming several quarters, I hope you’ll allow me to extend this football analogy a bit further. There is a question I’ve pondered for years? Who is the actual investor? Is it you, our clients, whose wealth we feel a tremendous sense of responsibility to guard and grow? Or is it us, the people who are making portfolio recommendations, designing asset allocation strategies and actually executing trades?

After thinking about this for many years now, I’ve come up with an analogy that makes a lot of sense to me. I’ve borrowed it directly from the NFL. I’ve come to think of my clients as the General Manager of their own football franchise. They are the core stakeholder, if you will, who stands to benefit the most from winning. They’re the ones who put up the capital and who set the strategic direction for what the team is supposed to accomplish. But they’re not the ones actually playing the game on the field. That’s my role.

In fact, I see my role as akin to the quarterback in the actual game. Just as a QB runs plays and makes adjustments as the game proceeds, I do the same. I’m constantly watching the markets, comparing what I see to what I know my clients want. I also leverage a whole lot of technology to make things line up with my clients’ goals. So I guess you could say—I’m on your team. I’m your quarterback, making moves in real time to ensure that you win. But ultimately, we are a team. 

 

The Geo-Political Landscape

While the Superbowl may have been the biggest sporting event of the year so far, the biggest geo-political event has been in Israel. The horrific Hamas attacks on October 7 of 2023 have escalated into all-out war in and around the Gaza strip. It is difficult to see how peace discussions will bring an end to this conflict any time soon.

The Russian war on Ukraine is now more than two years old. The contest for Ukrainian sovereignty has gone back and forth numerous times, with dire predictions of a Russian victory. But so far, the Ukrainian people have shown a resilience that almost no one could have predicted.

China’s interest in Taiwan is yet another development I’ve been tracking. The level of military posturing in the region, from more than one source, is a situation worth watching. But so far, it seems to be more saber rattling than actual stratagem.

Major U.S. elections will take place this year, including the election of a new U.S. President. While many Americans had hoped to see a more respectful and less politically divisive environment, those hopes may not be realized. This might be why, according to a Gallup poll, Independents are the fastest growing political party in the country. 

As I write this in February of 2024, none of these geo-political events seem to have had a major impact on the markets. But as my colleague noted in the last Perspectives article, things could change quickly if new wars were to break out, if Ukraine were to achieve victory or if a cease-fire takes place in the Middle East. We are watching all these situations closely.

Key Take Away

POLITICAL DIVISIVENESS IN THE U.S. MAY BE ONE REASON INDEPENDENTS ARE THE FASTEST GROWING POLITICAL PARTY.

Drivers Impacting Markets Over The Next Few Quarters

  • AI for business. The rise of AI as a tool and business resource cannot be ignored. However, I believe the real impact of AI will not be seen for several quarters. The impact could be felt in terms of reduced costs, innovative new business models or even lost jobs. It’s too early in the cycle of AI use to predict just what kind of impact it will have. But it is, without a doubt, a game-changer.
  • Commercial real estate. If there’s one thing the pandemic taught all of us, it’s that we could work from some place other than a traditional office. Commercial real estate has consistently been a darling of commercial banking. But what will the impact be on both industries if a large-scale return to the office does not take place?
  • U.S. Elections. Election years are typically pretty solid financial performers. But there also seems to be a bit of hesitancy to commit to initiatives that a winning political party might quash with legislation. Both candidates running for President have generally taken a pro-business stance.
  • Inflation. While spiraling inflation seems to have been curbed by the Fed’s interest rate hikes, it could resurface again. If the Fed is not careful in how it handles this situation, we could see a period of volatility while the Fed’s actions have their intended impact.
  • Personal debt. The big credit card companies are talking about the rise of delinquencies and defaults. We are seeing default levels that supersede what we saw going into the pandemic. Interest rates are tighter and higher than before the pandemic. I’ve read articles describing how there are more 250k-per-year households living paycheck-to-paycheck than ever before. This might suggest that many consumers’ safety-net is not as strong as it used to be.

I want to say for the record that I can’t predict the future. But we are watching these trends and developments in real time to ensure we are on top of them. We also have put safeguards in place to ensure any moves that we need to make are in line with your risk tolerances and goals.

 

What I’m Focused On Right Now

You may have noticed that this is the first Perspectives article penned by me. This is a reflection of my changing role with Strait & Sound. About a year ago, I took on the task of upgrading our technology infrastructure to ensure that we have best-in-class systems supporting our business. While this was ultimately a technology upgrade, it was undertaken to ensure we can deliver an even better experience to our clients.

I’m quite proud of the outcomes of this effort. We now have more tools, resources and technology at our fingertips than ever in the past. This means we can be even more nimble and all-encompassing in our efforts to serve you. From financial planning, to risk tolerance identification, to timely trading, to asset allocation and portfolio rebalancing, to real-time alerts, we now have technology and practices like companies many times our size. I sincerely hope our commitment to remain on the cutting edge brings you some additional comfort and peace of mind.

 

What Do I Recommend Right Now?

Based on my analysis in this thought piece, here are several recommendations for the next few quarters?

  • Consider liquidating consumer debt if it makes sense for you. Consumer debt, like high-interest rate credit cards or loans, could eat into your cash-flows and net worth, especially if interest rates spike back up. If you find yourself with this type of debt, I recommend that you consult with your advisor to see if it makes sense to liquidate it in the near term rather than over time.
  • Focus on the fundamentals for portfolio construction. As you review your portfolio with your advisor, I recommend that you focus on the fundamentals of the companies you choose to invest in. This includes important indicators like cash-flows, solid earnings, keeping costs in check and job growth versus job loss. Weaknesses in any of these areas could be an indicator of weaknesses in the fundamentals.
  • Set realistic expectations. While I don’t expect 2024 to be a banner year for the markets, I also don’t expect to see precipitous declines. I recommend that you take a sober perspective about the coming quarters so your expectations are in line with what is most likely to occur, not what you hope might occur under best-case-scenarios.
  • If necessary, build up that nest egg. Many people I’ve spoken with have admitted that the pandemic ate into their cash-reserves and they’ve still not built their nest egg back up to where they’d like it to be. If that describes your situation, I do recommend that you build it back up. Having at least 6 months of operating expenses on-hand can add real peace of mind. Your advisor can help you create a plan to restore your nest-egg to appropriate levels.
  • Stick to your long-term plan. In my experience, nothing will outperform a long-term plan that includes basic disciplines adhered to year-after-year. Building wealth, for the vast majority of people in this country, is a marathon not a sprint. It takes many years, focus, consistency and discipline.
  • Keep collaborating with your advisor. We love spending time with our clients and strategizing about your future. But sometimes, it’s difficult to get time on client’s calendars. Please keep collaborating with your advisor because this is how we serve you best. Besides, I also enjoy the opportunity to show what our new technology can do for you.

 

Wrap Up

Superbowl fifty-eight gave us a nail-biter that came right down to the end. This is exactly what we don’t want from our financial plan. The best approach to wealth building is to do it slowly, year-over-year, so you get to see the results and come to be confident in the plan. NFL teams have to swap out players for a number of reasons, like age, injuries and changing offensive and defensive strategies. In the financial services world, we really don’t want to make that many changes that often. When we do make changes, they need to be for very good reasons that align with your long-term interests.

But just as it takes a team to win the NFL, so also it takes a team to win in wealth building. Our abiding and passionate focus on our clients, our commitment to cutting-edge technology and our understanding of long-term wealth management strategies—all of these position us to be strong performers for you for many years to come. If you have questions about anything I’ve discussed here, please know I’d enjoy the opportunity to speak with you.

We Provide Comprehensive Wealth Management Services For People Seeking Complete Financial Independence

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