Brian Perry

In addition to overseeing Pure’s investment offering and platform, Brian works closely with Pure’s financial advisors, helping provide them with the tools and resources necessary to serve their clients and continue the firm’s mission of providing the highest quality financial education and planning to as many people as possible. He has been actively involved in [...]

Is now the time to buy tech stocks? Is it too soon to go global with your investments? What is next for the Federal Reserve? Brian Perry, CFP®, CFA®, AIF®, Executive Vice President and Chief Investment Officer at Pure Financial Advisors, recaps what’s happened in the financial markets so far this year, and what we might be able to expect for the rest of 2023.

Download the 2023 Key Financial Data Guide


  • 00:00 – Intro
  • 00:19 – What’s next for the economy? Economic indicators are mixed, inflation is still high but moderating. Concerns: the cooling labor market, commercial real estate, and China
  • 08:15 – How have markets performed? Stocks, bonds, the US dollar, oil, gold, cryptocurrencies
  • 22:47 – What’s behind the stock market rally? “The Magnificent Seven”, AKA the FAANG stocks: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla – tech stocks, large companies. The largest names in the S&P 500 have dominated the index this year. Technology stocks have gained, defensive stocks have fallen, but the rally has broadened and more sectors are participating including consumer discretionary, industrials, materials, energy, financials, information technology, real estate, consumer staples, and healthcare.
  • 27:50 – Should you stay in cash? CDs when interest rates are rising. Inflation and investment returns: US inflation vs. cash, bonds, and stocks. Three reasons to look beyond cash: shorter-term interest rates are higher than longer-term interest rates, (an inverted yield curve). Cash has underperformed following a Fed pause, and core bond performance is best when the Fed funds rate is greater than inflation. Bond valuations.
  • 38:06 – Should you only buy large growth stocks? Relative performance and valuation: the large cap indices are overweight growth. What it takes to get back to style neutral. Large companies are historically expensive
  • 42:28 – Should you still own international stocks? Emerging markets have underperformed
  • 44:09- What does the future hold? Is AI (artificial intelligence) the answer? What about resource scarcity? Public companies and private markets, private equity

Free Financial Assessment


Kathryn: Welcome for this market outlook with our Executive Vice president and Chief Investment Officer, Brian Perry.

Brian: Want to talk today about what happened last quarter, what’s going on in the economy, the financial markets and what the outlook looks like. As well as a couple of potential both landmines and opportunities going on. So let’s dive on in.

What’s next for the economy? Well, for starters, where are we right now? And the economic indicators are mixed. And what I mean by that, these are some of the leading economic indicators that the National Bureau of Economic Research looks at. And why the National Bureau of Economic Research? Because that’s the body that determines recessions. That’s the institution that’s responsible for saying the economy did or didn’t have a recession at a given time. And these are the half dozen or so indicators that they look at. Of course, they’re looking at the whole economy, but these are some of the main ones. And what you see here is a mixed picture. You know, real personal incomes are up, nonfarm payroll still positive, household employment’s positive. So, the labor markets remains pretty strong, but then you see retail and wholesale sales have been down. And industrial production down a little bit. And so what this does is this tells me we have a mixed picture right now. Recently GDP growth for Q2 was revised upward to about 2%. So we’re not in a recession at the moment by all indicators. For the last year, it feels like there’s been a lot of concern of, will interest rate increases push us into a recession? And the answer is that to date that has not happened. The main story has really been twofold, right? It’s are we going into a recession? And why would we go into a recession is that the Federal Reserve has been aggressive in raising interest rates to fight inflation and inflation still high.

Here’s a chart going back to the 1970s and you can see the spikes in the 1970s of inflation going up to 15%. And then the long deflationary disinflationary period here, where interest- or inflation stayed in the low single digits before the COVID-related spike, we got as high as 9%. And we’ve tailed off. So the good news is that inflation is lower than it was. The downside is it’s still high, but definitely moderating. And this chart looks at some of the components of inflation. Consumer price index. Green is energy. Orange is vehicles. Purple food, restaurants are in blue. Dark blue is shelter. And you can see the big weighting and the big contribution to the high inflation readings a couple years ago from energy and vehicles and how they’ve turned negative. So now if you measure year over year energy and vehicle prices are actually lower, and so that’s reducing inflation readings. You can see we’ve gone from a peak reading on CPI of 9.1% down to about 4%. Depending on how you measure inflation, whether it’s the P. C. E. deflator. The P. C. E. deflator, the personal consumption expenditures deflator, is actually the Fed’s preferred measure of reading inflation. The consumer price index is generally more popular in the public. Depending on whether you’re looking at the overall readings or core, which in core, they strip out food and energy. You’re looking at inflation anywhere from call it 3% to 5% right now, so above average, above normal, above where the Fed wants it, but lower than it has been. So what could throw a kink in the works? Aside from not being able to stamp out inflation, for those that may not have tuned in, the Fed did raise interest rates again today in an effort to continue to reduce inflation. We can talk some more about that. But what’s on the horizon in addition to inflation? Well, one concern is that the labor market is cooling off a little bit. This is a heat map. And on here, anything that’s red or orange means that the labor market is weak. Anything in green means that the labor market is strong, and yellow, just like with a traffic light, means somewhere in between. It depends on how daring you are and whether or not there’s a police officer at the intersection. Right? The darker the color, the stronger the reading, one way or another. And what you see, if you look back to 2020, lots of orange and lots of red when the economy shut down. Then gradually shifting to yellow and then to green where a really strong labor market throughout 2021 into 2022. And the picture more recently, a lot more mixed as we shift to some yellow. So the labor market’s cooling. Why does that matter? It matters because the consumer is more than two-thirds of economic activity in the United States. Who tends not to spend as much money? People without a job, right? So when there’s jobs that are plentiful, people either a feel secure in their current role, they’re looking for work, they can find it. They’re not worried about losing their job, etc. They tend to spend more. Labor market’s still strong, still solid, but not quite as hot as it was. The downside of that or the concern would be what if it continues to slow or moderate, can that be the tipping point into inflate into recession? But the good part of it is that the lower the cooler job market could lead to less inflation, right? Less wage increases lead to less inflation. The second concern out there, commercial real estate. For anybody that works in an office, you’ve probably noticed it’s more full than it was 18 months ago, but a lot less full perhaps than it was pre-COVID, right? The world of work has shifted to where more people work from home, and even people as they’ve gone back to the office, it’s more of a hybrid environment. Maybe they work from the office Tuesday through Thursday, but not Monday and Friday or whatever. That’s led to increasing office vacancies. Just like we saw with retail and malls and stuff. What is the use for some of that real estate? We’re seeing the same thing with commercial real estate in the office side, and you can see office vacancy rates quite high. In fact, the highest they’ve been in the last decade. The key point there is this is in a positive economy, in a growing economy. What does this look like if we go into a recession? Because usually office vacancies increased during recessions as companies lay workers off. If you’ve already got high vacancy rates and we go into a recession, what does that mean? Do office vacancies spike further? What does that mean for landlords? You’re seeing more stories about buildings that default and the like. Interesting tidbit. If you look at the United States today, there are approximately 1,000,000,000, billion with a B, square feet of vacant commercial real estate in the office space. Just to visualize that if you stacked a billion feet of empty offices from the ground on up, you’d get to the International Space Station. So there’s a lot of offices not being used right now. I think that’s an area to keep an eye on. The positive there though, if you think of 2007, 2008, the great financial crisis, the ensuing recession, the impact that residential real estate had on that. The positive is that the office real estate space, although the outlook isn’t great at the moment, much smaller component of the overall real estate market and the economy in general than residential housing market. Third area of concern, China. I’ve gotten a lot of questions China and Taiwan and this and that, and the relationship between the US and China has definitely become more acrimonious, less of a partnership, more of a competition. Happy to answer questions there. But for the moment, what I want to focus on is China’s economy as measured by inflation and deflation. Areas in green means China has inflation going on, in red means that they have deflation, shaded areas are a recession. And what you notice is that in the past there’s only been deflation really in China at times of recession in the early 2000s, great financial crisis again, and then COVID. Why that’s important is it’s hard to see on this chart, but China’s inflationary just turned negative. So China actually just barely tipped into a deflationary environment recently, which at least in the last 20 years, has been related to slowdowns in the global economy. China is one of the main drivers of global growth, one of the main consumers of a lot of commodities and products, obviously a big exporter of a variety of goods. If their economy really is slowing down that could potentially pose a risk to the global economy. So stay tuned there. That’s a little bit on the economy.

Let me shift forward to markets and then we’ll invite some questions. Right. So how have markets done in the last 3 months, year-to-date, etc.? We’ll start with stocks. Lot of numbers on here. So let me walk you through a few. I’d like you to focus on the left-hand side with all the little numbers. 2023 US dollar. So let’s, let’s do some drawing here. For those that have seen me present before, you know how special some of my drawing is. The S&P 500 year to date up about 17%. And this is through the end of the second quarter. So keep in mind this is through the end of June, not over the last couple weeks. You look at IFA. These are big developed countries, Europe, the UK, Canada, Australia, etc., up about 16%, doing really well there. Emerging markets. We’ll talk more about that, but a little bit of a lagger, but still up 5% for half a year. If you take 5% and double it over the course of a year, that’s 10%. That’s pretty good. You can see a number of countries that have done well. In addition to the United States, Japan up 13% in US dollars, France up 19%, Germany 19%, etc. So really pretty good returns year to date in the stock market. What about bonds? Well, again, we all know that last year bonds suffered their worst performance in really in recorded history, due mostly to the increase in interest rates. If you look here, the gray line, December 31st of 2021. So flashback 18 months where interest rates were. This is the yield curve. So this is mapping out the yield you can get for investing in various bonds from 3 months out to 30 years. You can see back in December of 2021. It looked like a fish hook, an upside down fish hook. That’s what’s known as a quote unquote “normal yield curve”. That’s the most average shape where the further out you invest, the more return you get with the greatest increase in return coming from about 0 to 7 years, 0 to 10 years, and then a flattening from there. Flash forward, you can see the green line for December of 2022, and then the blue line for last, the end of last quarter. Two things to note. One is the huge rise up in interest rates, which led to the declines in bonds last year. Two is the inverted nature of that curve where the short-term rates are actually higher than the longer-term rates. A lot of talk about that. A lot of conversation. Historically, an inverted yield curve has been a precursor to a slowing economy. And often a recession. So stay tuned on that. The one thing I would point out is if you look in the last 6 months at the delta between the green line and the blue line, you notice that while short-term rates have continued to move up, the increase in longer-term rates has moderated.

And in some cases, longer-term rates have actually declined. As we start to see the light at the end of the inflation tunnel, and people think the Federal Reserve is closer to containing inflation and backing off of interest rate increases. Shifting to the dollar, and I want to spend a couple minutes here. This is the dollar index, a weighted average of the dollar against some of its pure currencies. And you can see going back to the 90s, very high levels around the turn of the millennia, and then a long decline until about 2012, 2013, followed by an increase. And recently, the dollar peaked at near 20-year highs last September and has cooled off since then. Still at high levels. If you look relative to the last two and a half decades, the dollar is still pretty strong, but it has softened a little bit in the last 6 months. We get a lot of questions about the dollar. I just want to comment a little bit on the dollar in general, and then the dollar, is it going away?

Right? And we get questions around, what if there’s a digital dollar? What about- there’s talk about BRIC currency. So BRICs, Brazil, Russia, India, China, coming together to create a currency that would compete with the dollar. What about the Chinese yuan? Will that compete with the dollar and take away market share? The reality is, is we don’t think the dollar is going anywhere for a couple reasons. First of all, if you look at all global currency transactions, the vast, vast majority of them involve the dollar. Now, could that amount decline? Sure. But is it likely to go away? No. The dollar is the global reserve currency. Most central banks hold more dollars than anything else. And there’s frankly, there’s no competition, right? The Chinese yuan can’t replace the dollar because it’s not freely convertible. If you want to have a currency, a reserve currency, you need to be able to get your money out. If you buy yuan , you don’t know that you can get your money out. So that doesn’t become a replacement. The euro is the second highly, most highly traded currency in the world next to the dollar. But it’s only a fraction of the trading volume of the dollar or a fraction of the reserves. And Europe obviously has its own issues. The same thing could be said for the UK, Japan, and the Swiss franc, which are other global currencies. So we don’t see the dollar going anywhere. As far as competitors from Brazil, Russia, India, China, Brazil has had like half a dozen currencies in the last 30, 40 years. Again, I mentioned China not freely convertible. We all know what’s going on in Russia. India is still an emerging economy. So could they create a currency that could compete with the dollar? Sure. But is it likely to be a replacement for the dollar at the foundation of the global financial system in the near future? I don’t think so. And digital currencies, digital dollars? Well, sure. Some of the dollar may become digitized, but that would be a compliment to the dollar, not a replacement. The greenback’s not going anywhere. And if some of the dollars were digital, you would just take some US dollars out of the circulation, replace it with some digital dollars. You’d still have the ability to transact. So I don’t think the US dollar is going anywhere anytime soon. And although it’s softened that’s not due to structural concerns. It’s due to the disparity in global interest rates, narrowing where the US was the first country to really see interest rates go higher, which led to the increase in the dollar. And now, as other countries have caught up, you’ve seen the dollar weaken a little. Higher dollar, not always good for the stocks. This weakening is actually good for exports in the United States as well as US based owners of foreign currencies. So not a bad thing again. Again, don’t think the dollar is going anywhere, but it could soften. Oil, looking at this here, been very volatile, right? You’ve got the global financial crisis. You’ve got the complete economic shutdown with COVID. You’ve got a couple price spikes, particularly around Russia and recently settled in more or less in the middle of its range. Oil and energy and commodities in general tend to be very volatile. That’s one of the reasons when the Fed looks at inflation, they tend to strip out the price of energy when considering how to make monetary policy. We believe at Pure that the best way to get exposure to commodity prices is through commodity companies, companies that are involved in the space as opposed to the underlying commodities themselves, simply because of the volatility of the underlying commodities. Gold- gold’s an interesting one, right? So when you look at gold, you can see that in the last several months, it essentially went nowhere, maybe actually down a little bit. Year-to-date, you know, it’s about unchanged, give or take maybe up a touch. But it really hasn’t done that great considering that gold is often touted as an inflation hedge. We’ve had a couple years of the highest inflation since the 1970s, you would expect gold to do a lot better than it has. I think that does argue a little bit against gold as a fundamental part of a portfolio. For those that want to hedge, we generally say don’t have more than a couple percent of your portfolio in gold. Again, hasn’t done great long-term. Recently, it’s done a little bit better, but maybe not as well as you would have hoped given the increase in inflation.

What about digital gold, crypto? I talked a little bit about a digital dollar. This looks at Bitcoin. Obviously, Bitcoin has been an exceptionally volatile asset class. For those that have owned it for a decade, it’s also, you’re probably not listening to my podcast if you owned a lot of Bitcoin for 10 years, because you’re on your yacht. Bitcoin has done really, really well over time with extreme volatility. If you look, it was down about 60%, 70% and then it rebounded from, call it 17,000, 18,000 to about 30,000. So it’s had a pretty good run here in the last 6 months. Again, crypto there’s a lot of different cryptocurrencies. Bitcoin’s kind of the main one. Ethereum’s a big one. We think it’s a speculative investment. It could make sense as a small portion, potentially, in somebody’s portfolio. But generally not as a foundational piece. But it does have value potentially as a means to settle blockchain transactions. Hard to value what crypto is worth, similar to gold. Neither one has cash flows. So there’s really an element of speculation as far as what people will value these asset classes out down the road. With that, I want to talk a little bit about the stock market rally, but before I do, let me pause and see if there’s any questions from Kathryn.

Kathryn: Hey there, yes, we have several questions, so I’ll just get to a couple of them, and we will try to get to most of your questions throughout the presentation. But first of all, so “When folks are pessimistic, does that bring down prices so investors buy more, which drives the market up? And would that also be a good time for the average person to invest as well?”

Brian: Yeah, great question. There’s a famous saying that the best time to buy is when there’s blood in the street. So in general, the more pessimistic people are, the better markets too. And that makes sense, right? If everybody’s in a really good mood and singing and stuff like that. They’ve probably already bought stocks, and then there’s nobody left to buy more stocks to keep prices going higher. The reverse is also true. If everybody’s panicking and really pessimistic, it may mean more people are on the sidelines, there’s money waiting for the news to get just a little bit better to go in and buy. However, it’s not direct. So all else being equal, yes, the more pessimistic people are frankly, the more optimistic I am then, about stock prices.

But it’s not a one-to-one correlation. The fundamentals and the backdrop need to match as well. So if people are pessimistic because, you know, the I don’t know if there’s a nuclear war going on. Well, it may not be the best time to buy because the facts are still pretty bad as well. What you need is a combination of not-good fundamentals, but slightly better than expectation fundamentals combined with pessimism. And a lot of times that leads to explosive rallies.

Kathryn: Great answer. Okay, another one. “Private REITs, real estate investment trusts, really took a hit along with traded REITs. When they are a nice- when they’re a nice balance, when the markets fell, do you still feel that they have a place in the portfolio?”

Brian: Yeah. So private REITs are real estate investment pools that don’t trade on a stock exchange. They’re offered through various providers. I’ll say this. It’s like any asset class. It depends first, what are you trying to accomplish? What role does this asset class play in your portfolio? And then of course, which one do you buy? Because there are hundreds, if not thousands of them out there. All that being said, we meet with an awful lot of people that come to us having some sort of private REIT. And I don’t think I’m going out on a limb to say at least 99% of the time, one of the questions that people have is, how can I get out of this? I very, very, very, very, very, very rarely meet somebody that’s happy with their private REIT. Not saying that they’re not out there, not saying that there’s not good products out there. And I’ve seen them. I’ve seen a lot of them over time, and they often sound good. But I can just tell you, I’ve never owned one myself. I can tell you what people that I come across as experiences is that they’re generally not happy with their private REITs. The illiquidity, the inability to get out of them, the pricing and actually the performance they get usually tends to disappoint them. Public REITs are a little bit of a different story.
Again, it depends on exactly what you own. But we do think publicly-traded REITs, getting some exposure to, I mentioned some of the issues with commercial real estate, but getting exposure to parts of the real estate market, you might not have through owning a home. We do can think can make sense for some people and part of their portfolio.

Kathryn: Okay. And we’ll just have one more question and then we’ll get you back. “What’s next for the Fed? Do you see more rate hikes in 2023?”

Brian: Yeah, really good question. So the Fed met, came out with a decision a little over an hour ago and raised interest rates to the federal funds rate, which is the overnight lending rate among banks to 5.25% to 5.5%, which is the highest rate since in 22 years, since 2001. Their statement was that they’re now going to be data-dependent. And I think everything they did today was completely expected by markets. So they’re, they don’t meet again until September. And the market has .5% rate increase priced in between now and the end of the year, which means essentially it’s a coin flip. I don’t know for sure. It’s gonna truly, I think, depend on the data over the next couple months, whether or not the Fed raises interest rates one more time. And they have a pretty long track here, of a couple months before the next meeting to decide what to do. So they’ll have a fair number of data points. What I feel comfortable saying is, I think the Fed is a lot closer to the end of the rate increases than the beginning. Whether or not they go once more, I think is almost academic. I think the only way people would really start to reprice what the Fed is doing is if you get unexpected resurgence in inflation, in which case I think markets would suffer. You’d see the market’s price in more Fed rate increases. Or if the economy really starts to slow, in which case people would move forward any potential Fed rate cuts. Where we’re at right now, and frankly, nobody’s more surprised than me, is that the market seems to be looking at the Fed as navigating a soft landing. It’s kind of like the oatmeal not being too hot, not being too cold, but being just right in Goldilocks. Where inflation is moderating a little bit, but the economy seems to be gliding into a soft landing. That’s the preferred outcome for financial markets. I think that’s why you’ve seen them rallying in the last year-to-date or several months. We’ll see if that continues. I don’t know. I’m more optimistic on that now than I was 6 months ago, but I’m still not convinced the Fed will be able to land that plane in a storm on a short runway while they’re getting battered by the wind and stuff. It’s a pretty tough task to accomplish.

Kathryn: Okay, and we’ll get back to more questions later. So thank you so much.

Brian: Cool. Well, let’s dive on in and talk about what’s behind- speaking of stock market rally, what’s behind it? What the heck is going on, right? Let’s take a look. The Magnificent Seven, old Western movie for those that like Westerns. But also a nickname for 7 large tech stocks, some of which you may have heard of, right? Maybe you’ve even heard of Microsoft, NVIDIA, Tesla, Apple, etc. A couple of years ago, there was a different moniker, the FANGs, Facebook, Apple, Netflix, et cetera. The idea is that a small subset of high-tech stocks, large companies have been driving market performance. Here’s just how much they’ve been driving market performance. This gray line is the S&P 500 in the last year to date, last 6 months. The green line is the 10 largest stocks, which include those 7 tech stocks. The blue line is the other 490 stocks. And what you see clearly is that the green has dominated. So these 10 biggest stocks, this Magnificent 7 of tech stocks has really dominated market performance year-to-date. And you can see that in sectors, those stocks fall into information, technology and communication services. You can see they’ve done really well along with consumer discretionary, industrials, materials, real estate, much more muted. And then you start to look at health care, utilities and energy are actually down on the year. So a very mixed market year-to-date, depending on exactly what you’re invested in. It’s been a good year for almost everybody, but for some it’s been a great year, for others been it’s a meh year. But more recently, and I think this is important, is that performance has broadened out. So if you look since the end of May, up until May, you can see on the left-hand side that essentially all the performance was from the 7 companies.

If you look since then, those companies have added a little bit. But there’s a lot of other sectors and companies that have added to the performance as the stock market is more or less doubled in the last couple- or the gain has doubled in the last couple months. So, generally speaking, people get nervous when only a small subset of stocks are doing well, and they like to see this market leadership broadened out a little bit. It points to a healthier market. You can see the same thing. This is since May. You can see that more asset classes or more sectors have done better. And indeed, some of the leaders now, industrials, materials, energy, financials were some of the laggards. And I think that this is instructive, right? Look at energy was the worst performer through the end of May, right? It’s one of the better performers here more recently. So, I also think it’s instructive to look at stepping back a bit and look at what’s happened more recently. Because believe it or not, a few people have asked me if they should just buy big tech stocks. And everybody likes tech stocks this year when they’re going straight up. Very few people liked them last year when they went straight down. Everybody liked them a couple years ago before that when they were going straight up. Let’s look at since the end of 2022. So this is going back over 3 years or excuse me, 18 months since the beginning of 2022. You can see the purple line is the big tech stocks that Magnificent Seven, the blue line is the S&P, and you can see the black line is everything but the S&P- or everything but the big tech stocks. And what you notice is that you wind up in the same spot, regardless of what you own. So if you owned just the huge tech stocks since the beginning of 2022, or if you owned everything but the big tech stocks since 2022, either way you’re in about the same spot. As a matter of fact, you’re marginally better off if you didn’t own the big tech stocks, but it’s close enough that it doesn’t really make a difference. However, question for y’all out there. Have you ever gotten on a plane, walked up to the pilot and said, Hey, you can make this ride really bumpy. I’d appreciate it. Probably not. Right. Nobody gets on a plane and says, I hope it bounces around. Nobody invests and says, God, I hope it’s a volatile year. Everybody wants the most returns, but with the least amount of volatility. What ride would you rather had in the last two years to wind up in the same place? This black line or this purple line. Right. I like this. This is fun. This is less fun. To wind up over here, I’d much rather go like this, than like this. So I think that’s an interesting point that while tech stocks have done great this year, they haven’t been that great over the last two years. And it’s important to remember that when you concentrate all your holdings in a single sector, a single handful of stocks or securities, when it works, it’s a lot of fun when it doesn’t work, it might not be as much fun. As financial advisors, we’re big proponents of diversification.

I want to address another question I get a lot, which is should you stay in cash? Cash is way more attractive now than it has been in years, right? You can get 4%, 5%, 5.5% on CDs, T-bills, savings accounts, etc. Should you just stay in cash? Particularly because in a lot of cases, you can get more on a 6-month CD than you can on a 5 or 10-year bond. Why might you not want to sit in CDs? Well, a couple examples. First of all, this chart looks at the last half dozen times that the Fed has raised interest rates, and interest rates have gone higher. And what you can see here is that you’ve got the peak CD rate, that’s how high CD is topped at. And then it looks at, hey, in the next 12 months, how do you do in CDs? The Bloomberg US Aggregate, that’s the main bond market index, high-yield bonds or stocks. And what you see is that back in the 1980s, you would have done better in bonds, high yield or stocks as opposed to CDs in the next 12 months. Here in 1989, you would have done better in almost anything but high yield. In the mid-1990s, you did better than everything else in CDs. Here in the early 2000s, you did worse in stocks. But even though CD yields might have been higher than bond yields, you would have better off owning bonds. Here again in 2006,you would have better off owning bonds. And here in 2019, you would have been better off owning bonds. So the reality is, is that historically, even though CD rates might be attractive in a time of rising interest rates, you wind up better off if you buy the bonds instead of owning the CDs.

Here’s another way of looking at this. This is returns by decade. You can look at the 70s, 80s, 90s, and so on. Look at cumulative inflation over that time period. Look at how cash did versus bonds versus stocks. You know, if you’re looking here, I don’t actually see a decade with the exception of the last two years where cash has outperformed bonds, right? So with the exception of the 2020s, and again, you’re looking at two years of it, you’re not looking at a very long track record. Even in times when cash was attractive, you’d have been better off buying the bonds. Finally, a couple examples on this slide. And this slide is busy, but I want to highlight a couple things. First of all, this on the left-hand side here looks at when short-term interest rates are higher than longer-term rates. That’s that inverted yield curve I talked about. How are subsequent returns in the next year when the yield curve inverts. And it’s really, really, really tempting to invest in short-term bonds and get more return on your cash or your short-term bonds and a longer-term bonds. Well, it turns out in the next 12 months, your money market fund would have gotten you 4% on average. Your short-term bonds 5% and your longer-term bonds, 8%. Even though you could have gotten higher rates starting there. What about when the Fed? We got the question, what’s the Fed going to do? And I said, I think they’re closer to the end than not. Well, how has performance been once the Fed’s done raising rates? Well, cash is done okay, right? That’s you’re starting at that level. That sounds pretty good. Short-term bonds have done better. Core bonds have done better still. So when the Fed gets closer to being done raising rates, historically moving out of cash and into bonds has made sense. What about when the Fed funds rate is greater than inflation? Well, right now, as of today, the Fed funds rates at five and three-eighths. Inflation is running at about 4%. So Fed funds rate greater than inflation. Historically, bonds have done pretty good. So I know it’s been a tough environment for bonds in the last couple years. I know that it’s tempting to buy short-term bonds or sit in cash when the rates appear attractive and when they’re higher than longer-term bonds. I think that’s a mistake. Because what happens is that eventually those rates go down and your CD that you were getting 5% on matures and now you’re getting 4%. Then it matures and you’re getting 3%. Versus if you owned that 4.5% bond, you still get 4.5%. The final thing to point out is that bonds are relatively attractive from a valuation perspective right now. The purple line is the 10-year median. The gray bar is the range. And then the diamond is where you’re at right now. And what you see is that in most types of bonds, the diamond is pretty close to the high. So in many, many cases, if you look over the last decade, you can get almost the highest amount of return from the bonds that you’ve gotten in quite a while. So bonds pretty attractive right now. We like them. We think that returns last year were tough, but that you can get the kinds of returns going forward that make it more attractive to own bonds. Starting yield is really important and yields are attractive right now. We like bonds. We think that they’re more attractive today than they have been in probably since the financial crisis in at least a dozen years or more. Let me pause there and see if that’s invited any questions before we ask if you should only buy large growth stocks.

Kathryn: Yes, actually, you answered a few of the questions that came through on that last couple slides.

Brian: Because I can see the future, Kathryn.

Kathryn: I know.

Brian: I know exactly where the market’s going to close at the end of the year, and everybody that sticks around in the end, I will tell you that.

Kathryn: Very good. Okay, so a couple of questions are not exactly- we’re all over the place here, so I’m going to get to a couple of them. But basically, “What trends in Q3, should people within 5 years of retirement or those that have retired within the last 5 years, keep in mind.”

Brian: That’s a good question. It’s an interesting question. You know, the short answer- part of me wants to say almost nothing. Simply because I don’t think you should make changes if you’re approaching retirement in retirement or frankly- frankly, at any stage of really your finances. I don’t think you should necessarily make large changes based on a trend of the next 3 months. You know what I mean? You should make changes based on Hey, you’re planning to retire in the next 5 years. And you move that up to the next 5 months you’re going to retire, right? Or you decided to work an extra decade. That’s when you would make changes. But I guess to answer the question more specifically. I’d want to look at a couple things. I want to look at, will the dominance of large growth companies, especially those large tech companies continue, or does it make sense to own a broader subset of stocks? What about bonds? You know, how are you invested in your bonds? Does it make sense? Have you overweighted cash? And does it make sense to broaden that out? I’d absolutely no matter what stage you’re at, but especially if you’re 5 years out or recently in retirement, want to look at how are you set up for taxes as far as how are you going to distribute income back to yourself? And what is the tax impact of that? And are there any steps you can take to mitigate future taxation as you draw a paycheck from your portfolio? And the final one, and I usually end my slide with this, but I’ll say it now is, what’s your required rate of return? And I would challenge everybody out there 5 years out from retirement, first 5 years of retirement, or, you know, 25 years old to say, what’s your required rate of return? What rate from your investments do you need to get in order to meet your financial goals? And if you can’t answer that, then I would say you absolutely need to sit down and figure that out or sit down with somebody and figure it out. Because it’s otherwise it’s like saying you’re going to go on vacation and I hope I get there, but you don’t know where you’re headed. Are you going to Florida or Michigan? You’re probably not gonna wind up where you’re going because you don’t know. You need to have a sense of what your required rate of return is, then come up with a game plan to get there, particularly as you approach retirement. And then how are you going to be tax efficient from there? I think again, market leadership within stocks. The balance between short and longer-term fixed income, and also probably the balance between US and international stocks are all going to be important.

Kathryn: Okay. And very detailed question answer. Thank you. Another question. “Do you mean when you’re talking about the bonds, they just want clarification of, do you mean long-term bond ETF or long-term treasury bonds?”

Brian: Good question. So I think when I talk about bonds, I mean the asset class and the same when I talk about stocks. There are a variety of ways to invest in either bonds or stocks or really any asset class. You can buy individual securities like individual treasuries or individual stocks or individual corporate bonds. You could own a pool of those through a mutual fund or through an ETF, an exchange-traded fund, or through a separately managed account, which is a professionally managed portfolio of individual security. So I think the vehicle selection is important, but a lot of times it’s less important than the asset class itself. When I talk about intermediate or longer-term bonds, I’m talking about treasuries, corporates, other investment-grade bonds, regardless of the wrapper that you have them in.

Kathryn: Okay. And last question that we’ll get to right now. We have several, but so “You were talking about potentially the economy slowing down. If we do enter a recession, should I sell out of my stocks?”

Brian: Yeah, I mean, I wouldn’t even finish this webinar. I think you could sell, you know, I’m- shoot- what time is it? Oh, no, it’s too late. Yeah, no, no, I think- so a couple things there. I think it’s important to remember that stocks are a leading indicator.
And what it means is that the stock market often goes up before the economy comes out of recession and goes down before the economy goes into recession. So if you’re in a recession, a lot of times it’s too late to sell because stocks often have already suffered a good portion of their decline and then are on the way coming back out. If you anticipate a severe recession in the next 6 months and you know something that maybe the broader market doesn’t then yeah, maybe you should sell some stocks. But here’s the key. So prior life, I managed money for institutions, right? Big entities, hospitals, foundations, cities, counties, etc. When an institution decides that they want to sell stocks, they don’t go out and sell all their stocks, they slightly reduce the allocation. So if they were previous 50% stocks, they might take it down to 47% or 45% or something like that. So they’re trimming their exposure but they’re not going from 50% to 0% and moving it all to cash. Because that’s a really hard game to play because I’ve a long time and I’ve never met anybody with perfect foresight as to whether or not there’s going to be a recession, inflation, this, that, the other. Perfect idea as far as the timing of when it’s going to happen. And then perfect ability to reverse it and then say, okay, now’s the time to get completely out of cash and all into stocks again. So if you do think of making those moves, hey, you know, you need to have confidence in your outlook. And not just your outlook, but why your outlook is different than the broader market and why you’re right and the broader market isn’t. And then make a measured move on the chance that you’re wrong and also have a plan to reverse it.

Kathryn: Sounds good. Thank you so much. And we’ll get to more questions later, but head on.

Brian: Yeah. Let’s talk about large-growth stocks. And like I said, those Magnificent 7 really have been super strong lately. And when we look at it, you can see here that the value stocks. This is year-to-date right, across the top, you got big companies. Across the bottom, you got small, down the left-hand side here, you got value. Not as exciting. Not growing as quick, but you pay less. And then over here, you’ve got fast-growing companies, but you pay more. You can see large growth up 29% small value up 2.5%. So the large growth has crushed everything else year-to-date. We peel back the lens a little bit and go back to March of 2020, which some of you may remember, there was a little bit of a pandemic going on at that moment. Since then, you can see the large growth up 115%. Small value up 111%, mid value up 116%. You can see that returns are much more blended. With the exception of some of these small growth companies, which historically this is the worst-performing kind of stock anyway. But again, I think another example that recently year-to-date, large growth companies have done really well. As you spread out the lens, performance is a little bit more varied. One other thing to point out, I think is valuation. So this is the current PE or price-earnings ratio and measure of relative valuation compared to the 20-year average. You can see the large growth companies are at about 144% of the long-term average, which tells me they’re relatively expensive compared to the past. That doesn’t mean they can’t go higher, but it does mean that they’re not cheap right now and see small values a little bit less expensive at about 90%. And a lot of other parts of this are more or less historically average, if you will. So I think this speaks and I could throw up all kinds of other numbers. I, you know, but the bottom line is that stocks are not screaming cheap right now. They’re not excessively expensive, but they’re not super cheap. They’re probably somewhere in the middle. So really the outlook for stocks over the remainder of this year is going to depend on fundamentals. What happens with inflation, the Fed, the economy, etc., and certainly corporate earnings. How do they develop? The one issue though, is that many, many, many, many, many, many, many people are overweight, large growth. So if you own the S&P 500, chances are the S&P 500 is heavily weighted to large growth companies. So let’s say that you say, hey, you know what? I’m going to try not to be so overweight, large growth. So I’m going to own the S&P 500. But I’m going to sell 35% of it and put it in value. So now I have 65% in the S&P 500 and 35% in value. Seems prudent, right? You’re trying to reduce your exposure to the S&P, which is dominated by large growth, get a little value in there. Even if you move 35% of that portfolio into value, turns out you still have more growth than value, right? So that’s how heavily weighted a lot of people are if they just own the S&P to growth is that you could take a third of your money, put it in value. You still have more growth in value. So I think for most of you out there, one recommendation I would have is to take a look at your portfolio, run it through some software and see how does your portfolio break down into growth, value, large, small, etc. Cause I’m not touting any one kind. It’s just that over time, different environments support different kinds of stocks. And if you’re heavily concentrated in just large growth, for instance, or just large tech, that’s great when it’s doing well, less good when it’s not doing well. Kathryn asked a question about, hey, if you’re retiring in the next 5 years, well, how about if you was 19- if it was the year 2000, you’re retiring, and you’re all in large tech.

Well, the NASDAQ fell by 80% in the first part of the 2000s. You know, I haven’t looked at all your finances, but I’m gonna guess that almost everybody on this meeting, if the market fell, if your portfolio fell by 80%, your retirement would not go well, right? Having more diversification could have helped. Lots of other parts of the stock market during that period actually were positive. Here’s another measure of US small versus large cap. You can see that small companies over here on the right-hand side of the chart. Two standard deviations below historical norms the cheapest relative to large companies that they’ve been since the year 2000. Just another argument for spreading out some of the exposures, looking at where you’re at and where you might want to be.

One other thing I want to touch on is that the world is a scary place, right? So should you still own international stocks in a scary world? Year-to-date, like I talked about over the last 12 months, emerging markets have underperformed. So this is emerging markets in the last year. You can see it’s essentially flat. And then if we look going back to the early 2000s emerging markets really have done nothing. Here you can see emerging markets. Back in, I don’t know, 2006, 2007 actually lower today than they were then. So, again, been a really tough environment for emerging markets. There have been some bull and bear markets in there, but they’ve done very little. I think when you look at emerging markets, though, A) the stocks are reasonably cheap and, B) these are some of the fastest growing economies on earth, and some of them have positive demographics. Some don’t. But I do think having some exposure to emerging markets can make sense, particularly because they’re inexpensive. This gets back to the relative valuations. Here’s next year’s forward PE. You can see emerging markets 11, emerging markets small companies 11.5, frontier markets 9, Asia 11. And then if I come over here to the S&P, you’re at 18, right? I would argue that emerging markets should be cheaper than the S&P 500 because there’s more risk, right? They’re developing countries for a reason. But that’s a pretty big pricing differential. So, I do think emerging markets, despite some of the news flow, despite some of the concerns, COVID, China, Russia, Ukraine, etc. I think that emerging markets could be poised to do well in the years to come. So let’s talk about what the future holds, and then we’ll go to some questions. I just want to touch on a couple of topics that have been in the news lately. Full caveat, I don’t have the answers here. These are just discussion points.

One other thing I want to say is that I’ve talked about a lot in this webinar. There’s a lot going on. Talk to somebody about the things I’ve done. Talk to your financial advisors. If you don’t have a financial advisor, if you do, and you want a second set of eyes we usually charge a couple hundred dollars an hour to meet with people. But for those that have attended this webinar, we do offer a free financial assessment. There’ll be a – What’s the word for it? A questionnaire or a form that Kathryn will put up. That’s it. Cat’s got my tongue. There’ll be a questionnaire that Kathryn will put up. If you want to come in for a free financial assessment, let us know. There’s no cost or obligation. It’s not a couple hundred dollars an hour. It’s completely free. What we’ll do is, we’ll take a snapshot of your portfolio to show are you concentrated in large or small companies, growth or value? Do you have proper diversification? What kind of bonds do you hold? Are they too long in maturity? Are they too short? What kind of international exposure do you have, if any? We’ll also take a look at your taxes. We can tell you, hey, you know, I mentioned distributing income to yourself tax efficiently in retirement, right? Do you have proper tax diversification? Are you going to be efficient with your income, keeping it out of Uncle Sam’s hands and in your hands or your family’s hands in retirement? Again, no cost, no obligation. But if you want to come in for that free financial assessment, you can meet with one of our CERTIFIED FINANCIAL PLANNERs™. Take a look at your portfolio, your tax situation, your cash flow, Social Security, pensions, etc. No cost, no obligation. Just let us know you want to do that.

While Kathryn takes a look at that, I want to talk about what the future holds. AI. ChatGPT. I don’t know if any of you used it. It’s pretty amazing. There’s some other programs out there, Firefox and stuff that are that are really pretty cool. This looks at the time it takes to get to 100 million users in months for various technologies. WhatsApp, Facebook, Snapchat, Instagram. You can see anywhere from WhatsApp was the better part of 5 years. Facebook was about 3.5 years. Snapchat about the same. Instagram was about two years. And you look at ChatGPT took a couple months to get to 100 million users. It’s one of the fastest adopted or used technologies in history. I don’t have all the answers on AI. We get lots of questions on how is it going to change investing market society? I think the answer is, it’s going to. How it’s going to, I don’t know. Obviously, we’ve all probably seen the Terminator, and I think that’s the bad outcome for AI is that we’re all working for the robot overlords. But there’s lots of positive impacts that it could have as well on streamlining productivity and really helping. If you look around the world at a lot of economies, there’s significant demographic issues in the vast majority of the countries in the world. If you look out over the next 10, 20, 30 years. I think AI and making people more efficient can help overcome some of that. So stay tuned there. It will also undoubtedly have significant investment implications. Another key topic I believe is resource scarcity, particularly for some of the resources that are important to the emerging technologies around electric vehicles, lithium batteries, alternative energy sources, rare earths and those kinds of things. When you look at this chart, you can see that the blue box. The blue bar is worldwide production. The red dot is China share. The gray bar is the US’s share. And obviously there’s a ton of information on here. So the idea is not to memorize all this stuff. But what you see is that there’s an awful lot of important security technologies and resources where China is the largest national share. And in some cases, there’s as much as 100%. In here, there are about 70% or 80% of world output. In here, they’re like 50%. So you could see as perceived or real competition between the United States and China escalates or increases why there’s concern about access to some of these materials, how that will happen and stuff. And again, from an investment perspective, this is a developing area. But I think will play out in the economy, in geopolitics and in markets over time is how does countries around the world source all of these elements, all of these resources.

The final thing I want to touch on is public and private companies. So over the last 30 years, 20 years, the percentage or the number of publicly traded companies in the United States has been cut roughly in half. At the same time, the number of private companies has increased significantly. And I think that speaks to what happens in portfolios. How do you invest, right? If you invest in private companies versus public companies, etc. The problem, of course, is that investing in private companies has always been really difficult. You can’t just go knocking on doors. You might not have the resources to go to the local, I don’t know, IT company and invest $50,000,000 in them. And then that brought about the world of alternative investments where institutions or very high net worth individuals could access private equity and invest in these kinds of companies. An emerging trend in financial markets is more access at a lower dollar amount in some of these types of investments, whether they’re private equity, private real estate, private lending, hedge funds, etc. More vehicles have come about that give investors access at lower dollar points. It’s still emerging. It still can be a little bit difficult to navigate, but I think as you look out over the next 5 years, 10 years, whatever, I think that potentially increasing exposure in some areas to some of the privates as vehicles and access become more prevalent could be something to monitor as well. So those are just a couple of areas I wanted to touch on that. I think are going to be topics. Again. nothing to do today, tomorrow, next month. But as you look at over the coming years, I think will be at the forefront of investor decisions.

Again, I mentioned what’s your required rate of return and how will you manage your taxes? And with that, I’m going to go to questions and answers. And like I said, if you want to come in, if you want one-on-one, I can answer your questions now, but if you want one-on-one questions from one of my colleagues, want to know your specifics, what to do, where are you at? Are you on track for retirement? Are you making mistakes? Are you doing things well? Let us know. We’ll sign you up for free financial assessment. Meet with you a couple times. Go through your taxes, your investments, your Social Security, etc. No cost. No obligation. It’s something that you know, a lot of folks pay hundreds, thousands of dollars for you. Get it for free. So if you want to do that, let us know. But in the meantime, keep throwing your questions my way. I’m happy to answer a few more.

Kathryn: Well, we do have a lot of questions, so we are not going to be able to get to all of them. But I did put a link in if you want to send us emails at info@purefinancial.com or as Brian said, come on in and get your questions answered in person or via Zoom. So a few, we’ll see how many we can get to. “So markets aren’t talking about the war in Ukraine anymore. Why not?”

Brian: Because from a financial impact, it really doesn’t have much. I’ve been saying this since March of 2022 is setting aside the humanitarian crisis and the geopolitical issues, I think from an economic and financial standpoint, there’s some fluctuations in commodity prices. Wheat prices, oil prices. But broadly speaking, unless the word goes nuclear or spreads to NATO. I don’t think it’s much of a impact at this point on financial markets.

Kathryn: Okay. How about “I’m afraid of investing right now due to all of the uncertainty. When will it be safe to get back in?”

Kathryn: Open your crystal ball, Brian.

Brian: I guess my question would be, when is it not uncertain? I don’t know how old our viewers are, but in October of 1962, kids in school were hiding under their wooden desks, waiting for the bombs to come from Cuba because Russia had invaded, was in the process of bringing news over to Cuba and we’re at the precipice of nuclear Armageddon, right? And since then, you know, the Dow has gone up 30 fold or something like that. So times are always uncertain. And yet markets go up. So if you believe in the power of capitalism, you believe that companies are going to make goods and services people want or need, then broadly speaking, there’s a tailwind. There’s a rising tide behind investing and you know, you don’t have to get all in ff you’re nervous. Maybe a dollar cost average, maybe you put a little bit to work, wait, put a little bit more to work. But staying on the sidelines is generally a recipe to lose out to inflation and fail to meet your financial goals.

Kathryn: Good answer. Okay we’ll have a couple- We’ll see how many we get to. “With all the new technological developments as well as government policies, do old investment approaches still work or do we need to try something new?”

Brian: Yeah, it’s a good question. I think look, I mean, by all I guess I would revise old and call it classic or time-tested investment approaches and something that’s time tested means it stood the test of time. It’s worked, you know, there was a time where the train was the great technological advancement. And I would argue that the train was probably a more impactful technology than anything that’s come out in the last 100 years. It changed like the leap forward in society was probably greater than virtually anything that’s come out since then, right? Today it’s old tech. You know, and there’s 100 examples like that of technologies that were new at the time and now are old and products that have come and gone and ways to invest. You know, but diversification. Time in the market instead of timing the market, asset allocation and finding your required rate of return and asset allocation that’s likely to get there. Tax managing your accounts. Goals-based investing. I think all of those things still make sense. The key corollary is that as the world evolves, you keep an eye on it. I mean, I mentioned a few things, private investments, right? I mean, I think you keep an eye on that. And as that space evolves, you figure out whether it makes sense to put in. So you use a framework of a classic time-tested approach. You stick to your knitting and stick to your philosophy. But then if the tactics that are going to help you within your philosophy accomplish your strategic goals, if there’s new tactics that make sense, yeah, you absolutely incorporate them. But what you don’t do is you don’t make wholesale changes and abandon the old just because something shiny and new came along.

Kathryn: Okay, and I think we can get to one more question. So this one’s just is “In your opinion, what is a good percentage of large growth versus large value, etc., to achieve a well-diversified portfolio for retirees at this time?

Brian: Yeah. I mean, that’s a great question.

Kathryn: There’s not a lot of information you have there, but-

Brian: Yeah, precisely right. I mean, if you want to come in for an assessment and we can look at your situation and what you’re trying to accomplish, etc., etc. But it’s hard to say, not knowing what all you’re trying to accomplish, what your required rate of return is, what else you have going on. I would say in general if you’ve got more than 40% or 50% there, that’s too much. But the exact percentage is going to depend on so many other things, it’s hard to give you an answer. I will say that in my experiences, most people have too much, not intentionally, but by accident.

Kathryn: And then I guess I will ask, let’s see one more question. We’ve had a lot here. How about “2024 election will be upon us before you know it. What is your outlook for the election?”

Brian: You give me 30 seconds to talk about the election? Here. Here, I’ll give you my off-the-cuff answer. I’m sure we will talk about this a lot more in the next 15, 16 months, God help us all. Turmoil, anger on both sides, rhetoric, noise, hyperbole. That’s my outlook, that’s my forecast. And yet despite it all, no matter what happens between now and then and after next November, I think that the United States will continue to move forward, will continue to be one of the best countries on earth. Financial markets will continue over time to go up. Companies will continue to do well. I predict insanity. But coming out the other end with a long-term investment approach still working.

Kathryn: All right. Well, thank you so much, Brian. This has been extremely informative. We’ve come to the end of our time, but if Brian, we did not have a chance to get to every question that came through, the lot of really great questions, but if we didn’t have a chance to answer your question please get your answers- get your answers from us and get them all your questions answered in a free assessment as Brian had already mentioned, and I put the link in the chat. So, or you can email us at info@pure financial.com or give us a call. I’ll put those in there as well. But I think we’re out of time. And so we will, I’m going to go ahead and put this in the chat here for everybody. There you go. And thank you so much for joining us today. And we will get- we have webinars every month. We hope that you’ll join us next month. And thank you again, Brian, for all of your information.

Brian: Pleasure. Everybody have a great day.

Kathryn: Expertise. Yes. Thank you all.

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