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 [...]

Where can I purchase bonds?  Is it ever too late to do a Roth conversion?  Is a recession still coming? Pure’s Executive Vice President and Chief Investment Officer Brian Perry, CFP®, CFA® charter, AIF®, provides insight into the financial markets and an outlook for 2024 and beyond.

Download the 2023 Key Financial Data Guide


  • 00:00 – Intro
  • 00:45 – The Economy
  • 03:31 – Fixed Income, Currencies, and Commodities
  • 10:21 – Q&A: Where can I purchase bonds?  And how do I bundle them?
  • Can you talk about the deficit and how that will impact the economy, real estate, and retirement?
  • 13:48 – The Dollar
  • 18:16 – Stocks
  • 23:05 – Q&A: Do you see a recession coming? How do we prepare for it? And how do we know it’s coming in 2024?
  • 26:48 – International and US stocks
  • 31:58 – Q&A: How do you mitigate currency exchange risks when investing in international stocks?
  • If someone is 62 years old, what should be their balance?  How much in bonds, stocks, etc.?
  • Is it ever too late to convert my money to a Roth IRA?
  • 36:59 – The Road Ahead
  • 40:11 – Geopolitics: Russia, Ukraine, and Europe; Israel and the Middle East
  • 43:55 – Another Election

Free Financial Assessment


Kathryn:  Welcome and thank you for joining us for this end of year market update with our Executive Vice President and Chief Investment Officer, Brian Perry. Hey Brian, how are you?

Brian: Hey, I’m doing well. How about you? Happy holidays, everybody.

Kathryn: Happy holidays. Thanks for everyone for being here. And this is going to be extremely informative. Great information at this time of year. So Brian, take it away.

Brian: I really want to talk about 4 things today. I want to talk about the economy. I want to talk about what’s known as FIC fixed income. So bonds, commodities, currencies. Then I want to talk a little bit about stocks, always on people’s minds. And then what’s going on next year. By way of preview next year is going to be uncertain. Just like this year was uncertain. Just like the next year will be uncertain. So let’s dive on in and keep those questions coming. The economy. So for starters, what’s going on with the economy? And the big story of the last couple years has been inflation, right? We came out of Covid, tons of monetary stimulus, and then we over stimulated the economy and boom, inflation ramped up. You’ve all probably noticed it. Things are more expensive. Gas here in San Diego. I filled up the other day, $5.40 a gallon still, right? Even with oil prices coming down, gas prices still high. Things at the food store are expensive. Houses are expensive. Everything costs more money. The Fed has been fighting inflation and they’ve started to get it a little bit under control, right? We just had a consumer price index reading today. 3.1% annualized rates. So we’re getting closer to where we want to be but still above the Fed’s 2% target. So inflation moderating, but still higher than we would want. What about employment? So employment’s the biggest driver of the economy, and it’s been red hot. And this is a heat map. And what that means is when something is red, it means it’s really strong or really weak, right? When it’s darker green, it’s really strong. Yellow is somewhere in the middle. And you can see that from Covid where jobs fell off a cliff. So that’s the deep red. And then you can see the green in 2021 into 2022 across these housing or these employment indicators where employment was very strong, the unemployment rate was at record lows, every business you walked by had a help wanted sign, and now you see a lot more yellow. So employment moderating, which brings up the question, is the economy just right? Is this Goldilocks? Has the Fed accomplished a miracle? Have they engineered a soft landing? And folks, it would be almost unprecedented if you had very, very high inflation, the Fed came in and raised the interest rates 400 plus basis points, and they actually engineered a soft landing. Usually what happens in that scenario is either inflation stays out of control or you get a recession. But we’ll see because right now, if you look at this again, yellow is good. It means things aren’t too hot, aren’t too cold. It means the porridge is just right. And to this point, these are leading economic indicators. These are the kinds of things that the National Bureau of Economic Research looks at to determine whether or not the economy is growing or whether it’s in recession. And you see that we’re just right. So still to be determined. We’ll see what 2024 holds. But as we look over the second half of 2023, the 6 months just prior, it appears that the Federal Reserve, which I have been very critical of, I’ve bashed on the Federal Reserve and said that they let inflation get out of control, that they were derelict in their duty for not raising rates sooner in 2021. But so far this year, they seem to have raised rates just enough, but not too much. The miracle may have happened. We may have a soft landing, but we’ll see. So it may indeed be happy holidays. Let’s talk about fixed income currencies and commodities, and we’ll start with bonds, and as you all know, bonds have had a rough run.

This chart, which I’ve used before, looks at some various bond market years, right? Going back to the mid-70s, the bar chart shows how annual performance was, the red dot shows how much the bond market may have fallen during the year. And what you see is that in most years, bonds at some point may fall 2% or 3% but almost every year is up. And then you get in a 3-year run here where bonds are down, including last year where you were down 13%, by far the worst performance on record. This year we’re actually positive. On this chart, you see year to date at one point, we were down 5% again in bonds. This chart says down 1%. Since then, as interest rates have declined further, the bond market is measured by the Barclays aggregate index is actually up about 2.5%. So right now, positive performance in the bond market. Again, the point of this chart is to show recent performance set aside. Down years in the bond market are very unusual. Most of the time, bonds perform positively. Let’s look at the yield curve, right? So this is mapping out interest rates across time. And what you can see is the sharp increase from 2021, that’s the gray line, to September of ‘23, which is the blue line. You can see that sharp increase. The green line is December of 2022. So you can see that rates did move higher here over the last 9 months through September. Interest rates have come down again since September 30th. We’re at a little bit lower levels than we are on this slide. I think the important thing to recognize here is that the sharpest part of the increase happened in 2021 into 2022, rates have moderated some since then. There’s also more income coming off of bonds. So valuations are a lot more attractive. And when you invest in bonds, there are two pieces. There’s price movements as interest rates fluctuate. And then there’s the interest that you’re getting from your coupon payments and interest rates have been much higher. So valuations are more attractive. These bars show the range over the last decade of what kind of return, what kind of income you could get from different kinds of bonds. The purple line is the median or the average. And the blue triangle is where you’re at today. And what you see is in a lot of cases here, those blue triangles are right near the top of the 10-year average. This folks, tells me that despite the fact that 2022 is a very bad year for bonds, 2023 has been more mixed, now slightly positive as of today.

This tells me that bond valuations are as attractive as they’ve been in a decade. There’s an old adage in finance, and I think hopefully you all believe it, is buy low and sell high. And I don’t think I’m sharing anything earth shattering with that news, right? As a general principle, buy low, sell high. This here tells me that if you’re buying bonds today, you’re generally speaking buying low. Valuations are attractive, at least compared to where they’ve been in the last decade. We like bonds. We think that they continue, even in volatile times, to be more stable than stocks. We think valuations are compelling and if as a portion of your holdings if you can get 3%, 4%, 5%, even 6% from your bonds, well, when you think about what kind of return you’re targeting in your overall portfolio, you are way better off today investing in a diversified portfolio and buying bonds than you were a couple years ago when they were at 1% or 2%. Speaking of bonds, not all bonds are created equal. These are a couple of different yield curves. Municipal bonds, BBB rated, municipal bonds AAA rated, and then treasuries and not important to memorize every number on here. What’s important is that each of these shapes is different. And this talks to the approach to bonds and why not all bonds are created equal and why professionals pick different kinds of bonds and build different kinds of bond portfolios is that the best bond to buy in, for instance, a US Treasury might be different than in a AAA municipal bond, and that may be different than in a BBB municipal bond. So again, when you go to buy bonds, it’s really not that different than buying stocks. Some people have a particular expertise that allows them to invest in bonds, but for many people, outsourcing that to a professional could make sense because not all bonds are created equal. Let’s shift gears a little to oil. When we talk about oil- I just mentioned the gas prices, the horror of $4 or $5.40 at the pump. I put gas prices have actually come down. Oil prices have come down some. I think the story and the takeaway here is that oil prices are volatile. They tend to be one of the most sensitive asset classes to geopolitical events, and we’ll talk a little bit more about geopolitics and the state of the world here in a little bit. But the bottom line is that when things go crazy, oil prices tend to react because they’re very tied to both unrest in the Middle East and some other, rather tumultuous parts of the world. They’re also very sensitive to economic activity, and so oil prices tend to fluctuate a lot. Here at Pure, we don’t believe in investing directly in commodities, partly because of the volatility you’re seeing on this chart. And partly because a lot of the instruments you would use to invest directly in something like the oil price don’t actually track the price of oil that well. You can get big divergences because of the way that they’re structured. We prefer to get exposure to things like oil prices or other commodity prices through producers of natural resources or providers of natural resources, like an energy company, a Chevron or an Exxon or a clean energy company or aluminum company or something like that. A company that’s actually using these commodities to deliver products to the end consumer rather than the commodities themselves. One other thing I wanted to touch on, and then I’ll pause and see if there’s any questions, is cryptocurrency. So our stance on cryptocurrency is that it sits upon the blockchain, and the blockchain is an exciting new technology that can help settle a variety of ledgers or a variety of financial transactions. We do think it has the ability to be transformational. Cryptocurrencies help settle that in the case of Bitcoin and some others. It’s also seen as maybe a store of value and alternative means of settling transactions and alternative currency. Obviously very, very volatile. And you can see here the 5 years, the huge price spikes and declines and then really bottoming out about a year ago. And then the rally this year. Down below, you can see one year performance has been really good. We’ve doubled and then some almost double and a half on Bitcoin over the last year or so. Our view on Bitcoin or any other cryptos, if you want to own them, is own a little bit, right? Don’t go all in. This is something with this kind of volatility is not something you want to put the bulk of your wealth in. It’s extremely speculative. There’s no cash flows that allow you to actually appropriately value it. You’re really relying on what other people will say it’s worth in the future. But if you want to put a little bit to work, then maybe that’s okay as a diversifier or frankly, just for fun. I want to talk some about the dollar, but let me pause, Kathryn. Are there any questions at this point?

Kathryn: Hello. Yes, we have a couple. So, one is regarding bonds, where can they purchase the bonds? And when you talk about bundling them, how does one do that?

Brian: Yeah. So there’s a couple of different ways. And just like with stocks, you can go and you can buy a mutual fund or an ETF, some sort of pooled vehicle, right? Where there’s a professional manager, either in an index or in an actively managed approach that’s going out and investing. You can also go and buy individual bonds yourself through a brokerage firm like Fidelity or Schwab or Vanguard or whatever. I will say that in the bond market, two things. One is the way it transacts and prices is a lot more like real estate. So, it’s not like the stock market where prices are quoted constantly and it’s easy to buy and sell. So it does take a fair amount of expertise. There’s also a lot more variety. So something like Bank America has one stock, right? Bank America might have 1000 different bond issues. And so for most people, if you’re going to invest in bonds, avoiding individual bonds and buying a fund or an ETF, or if you have a little bit more wealth and you’re buying a little bit higher amount, maybe a separately managed account where there’s a professional coming in and making those choices is probably the best approach to doing it.

Kathryn: Okay. And then also, can you talk about the deficit and how that will impact the economy, real estate and retirement in general. That might be coming up, but I thought that I-

Brian: Yeah, no, I can always count on at least one question on the deficit. And it’s, funny that the deficit is like the boogeyman. So I started my business. In this business- I’m a little bit hesitant to say, cause I’m getting older, but in the mid-90s, right. And since that day, the deficit has always been a topic. But it’s never been at the forefront. It’s always been like just kind of around the corner. And watch out, it’s coming for you, but it hasn’t actually gotten there yet. And so when I think about the deficit, do I think it’s an issue that the company is deeply indebted? Sure. Do I think that we probably have higher budget deficits and a national deficit than or debt than we should? Yeah. Do I think it’s an imminent issue for financial markets? No, I do not. I think that over time, the solution will be simple and this ties into what it means for your retirement. I think that there are really several ways that you can get out of a large debt. You can default. Outside of some sort of a technical default where the government doesn’t fund for a couple of weeks or some of what we’ve heard in the last year. I don’t think that we’re defaulting on the national debt. You can grow your way out of it. That’s the best way, right? Economic growth expands and you get higher tax revenues because of that. Or you can tax your way out of it. And I think that’s the most likely way is that over time we’ll see higher taxes for a lot of people and that will help pay down the debt. So we’re essentially borrowing from future generations in order to make promises and satisfy payments to people today. And as a society voters get to decide whether or not that’s all right. When you’re looking at your planning, I mean, I think that’s why at Pure, we’re talking about investments today, but why we spend so much time talking about tax planning and retirement is that it’s great to make money, but you also need to focus on how are you going to keep that money? And down the road when you start to draw income in retirement, how are you going to do it in a tax efficient way? Because even in today’s very low tax regime, you still want to minimize taxes. And then if in the future or you have higher taxes to help pay for the debt, it just becomes all the more important to structure things appropriately for tax efficient retirement income.

Kathryn: Okay. Thank you so much. We’ll get back to you.

Brian: Cool. Well, let’s talk a little bit about the dollar because we’ve gotten a lot of questions this year and not so much about, hey, where’s the dollar going today or tomorrow? But is the dollar in decline? And when I look at it, so this is the dollar index going back to what? 1980. And you can see that we’ve moderated a little bit here in the last year or so. But we’re still close to the average over the last 40 or 50 years. And we’re near the highest level since the early 2000s, late 1990s. And so if anything, the dollar has actually been stronger than average, not weaker than average, and I think that’s important because given the volume of questions we get about is the dollar collapsing or going away. The reality is, at least in traded markets, it is not. And so I wanted to just dive a little bit deeper and look at what is the role of the dollar in the economy and financial markets and just how prevalent is it? Can the dollar go away? Will it? Here’s all foreign exchange reserves. So this is where countries and large institutions hold their assets. And what you see is 60% of it is held in the dollar. That’s 3 times more than the next biggest currency, which is the Euro. You can see the yen’s at 5.5%, the pounds at 5%, and then a lot of people worry about the Chinese currency. Or renminbi, it’s at 2.5%. So the US dollar is about 25X the share of what the Chinese currency is. So can China or some of these other currencies grow to take the place of the dollar? Sure. But is the dollar going away based on this metric? Probably not. And remember, all currencies are relative. So as you look at this list, are there any countries on here that don’t have issues? And we can all sit around and talk about issues that the US has, whether it’s the national debt, the deficit, politics, etc. Europe has its own issues, right? Japan has terrible demographics, even though it’s had a pretty good year from financial markets and economic growth, right? Britain with Brexit and stuff like that has issues. China. So here’s China, right? China has a problem with youth unemployment right now. The unemployment rate among people under 25 was running 20% plus. So they went out and they solved the problem. So China solved their youth unemployment problem. So the next question is, how did they solve it? Do you know how they solved their youth unemployment problem? They stopped publishing statistics on youth unemployment, right? That’s the Chinese solution is that because they had a problem, they just stopped publishing the economic statistics. I don’t know that I want to put a bunch of my wealth in a country that would do that, from an economic perspective, right? Canada, Australia, not big countries, not going to take the place of the dollar, right? Here’s export invoicing. So where is trade happening and when it does, how is it being invoiced? You can see that in the Americas, 98% of all trade is executed in the US dollar. In Asia it’s 75%. Europe’s the one that’s a little bit lower. It’s about 20%. But that’s because a lot of trade within Europe happens in the euro, which makes sense. If you’re Germany and Italy and you’re doing a transaction, you both use the euro. Why wouldn’t you use that? Then the rest of the world’s 80%. So most trade around the world is done in the US dollar. You can see foreign exchange transactions. So these add up to 200%, which makes sense if you think about it, because if I exchange my dollars into pounds or my euros into yen, there’s two currencies. So you get 100% and 100% is 200%. You can see that the US dollar is almost a part of every foreign currency transaction out there. So again, very dominant from its share. And then here’s foreign debt that’s issued. The blue again is the US dollar. And you can see that it’s dominant. Most bonds around the world that are issued in a non-local currency are issued in the US dollar. And while that percentage has dropped slightly over the last decade, it hasn’t dropped much. And so again, just wanted to touch on this a little bit. The idea that the dollar might be in decline because of some of the issues in the US, could it be in a long term secular decline? Sure. But the dollar’s role in the global financial system is so dominant that we just don’t see it happening rapidly. And that’s not to say that the dollar won’t decline in the coming year or the coming years. It might. And from an investment perspective, I don’t know, if you own foreign stocks, you’d almost hope that the dollar declines, you’d be better off for it. but I don’t think the dollar is going to collapse. I don’t think it’s going anywhere. I don’t think it’s being replaced by China or the BRICs or anything else. Moving on, let’s talk a little bit about stocks, right? Stocks are generally people’s favorite asset class to talk about. It’s what’s popular on CNBC. It’s always in the news and stuff. Talk about stocks. And really the story this year has been the magnificent 7. Seven large technology companies, Facebook, Apple, Alphabet, Meta, Tesla, NVIDIA, et cetera. these huge companies. This is if those 7 companies were their own sector. So you break the S&P 500 up into sectors, you get materials, utilities, energy, you’ve got consumer services, etc., financials. These 7 companies would be bigger than any other sector in the financial market. So you can own essentially all the health care companies, all the financial companies, all the consumer companies and all the industrial companies, or you can own these 7 companies, right? What do you think will do better over the coming decade? These 7 companies are essentially the rest of corporate America. All right. So what about these big companies, right? They’ve been very dominant in the past year, but does their weight, does their proportion in stock markets reflect how much you’re actually contributing from a profits perspective. And you see here’s the weight of the 10 biggest stocks in the S&P, about 32%. But those 32% of the weight are only contributing about 22% of earnings. So that tells me that relative to the profits that they’re generating, these companies are overvalued. Here’s another way of looking at that. Market capitalization versus net income. So if you look at this, financials, for instance, are only 12% of the market cap in the stock market, but they generate more than 20% of all profits. Healthcare is about 12% or 13% of market cap and generates about 12% of profits. And then you see this one disproportion again, where these 7 companies are 27% of the market weight. But they’re only generating about 15% or 16% of the profits. Maybe they’ll grow. Maybe they’ll continue to expand their profits to justify these prices. But they do have a lot of work to do and remember and I want you all to not forget this. Just because something is a great company doesn’t mean it’s a great stock, and I’m not passing judgment, by the way, on these 7 companies. I’m talking about any high flyer or any sector that’s hot. There are a lot of great companies out there, and there are a lot of great stocks out there. They’re not always one in the same. You could be the greatest company. You could grow and grow and grow. If your stock price is too high, it still may not be a good investment. I think this is one way of looking at this. Everybody talks about how great these big technology stocks have done this year, but this looks at the performance over the last two years. So the blue line is the S&P 500. The yellow is the 7 big technology stocks. And the green is the S&P without the 7 big technology stocks. And so when you look at it, if you bought these 7 large tech companies, or you bought everything but them, either way you wind up with about the same amount of money over the last two years. But look at how much more volatile that yellow line is than the green line. If you’re going to wind up in the same place, what would you rather own? Would you rather sign up for that ride in yellow or that ride in green? And sure, at the beginning of this year, with a perfect crystal ball, last year you wouldn’t have owned any tech stocks. This year you would have piled in January, right? I don’t know what next year holds. But the reality is, I don’t know if I should admit this, but my crystal ball is cloudy and most people’s crystal balls are cloudy. Right? So without perfect foresight, this is the argument for diversifying. Is in the last couple of years, you’ve wound up in the same place, but with a smoother ride. There’s also the issue of valuation. So across the top here, you’ve got big companies. Down across the bottom. You’ve got small. Down the right hand side, you’ve got growth companies and down the left hand side, you’ve got value. And this looks at the current prices compared to historical norms as a percentage. What you can see a small value companies are about 84% as expensive as historical norms. So they’re a little bit cheap. Same thing here with mid value. You can see here 93%, 89%. So small companies are fairly valued at least compared to historical averages, but you can see the big growth companies are 130% as expensive. So I tell- that says that if you look compared to the last 20 years, they’re 30% more expensive. Here’s the deal though, valuation doesn’t tell you anything about timing. In the long run, if you buy low, you buy cheap, you tend to do better than if you buy high. But that doesn’t mean that things are going to change tomorrow or next week. But all else being equal, it says maybe these stocks down here are a little bit less expensive right now. These stocks up here are a little bit more expensive. Let me pause there and see if any other questions have come in, Kathryn.

Kathryn: Several people have been asking about the recession or a recession and questions about whether you see one coming, how do we prepare for that, or how do we know it’s even coming. So can you just kind of touch on a recession, whether or not you- I know your crystal ball is a little cloudy.

Brian: Yeah.

Kathryn: But, for 2024, as an example, what are you thinking and how would you prepare for that?

Brian: If you asked me this time last year, I would have said that 2023 we would have had a recession and I would have been wrong. I looked at what the Fed did, tightening monetary policy, trying to fight inflation, and rarely in history have we done what we’ve done without having a recession. So I’ve frankly been surprised at the strength and resilience of the economy in the last 12 months. Okay. Going forward, I mean, right now, the economy actually looks pretty good. I’m still personally a little bit concerned. Again, just the amount of liquidity that’s been sucked out of the financial system makes me think that at some point will experience a slowdown. But there’s a theory going on that we’re seeing rolling recessions, right? So that rather than having just a broad recession, we’ve seen housing slowdown and then maybe we see commercial real estate slowdown. So it’s going from sector to sector, but not really being reflected across the economic data. Here’s how you know if there’s a recession. So there’s one is a rule of thumb. People say, hey, two consecutive quarters of negative GDP growth is a recession. That’s actually not correct, right? The way you know that there’s a recession is recessions are determined by the National Bureau of Economic Research. They look at a variety of economic inputs, including 6 main statistics, and they determine whether or not a recession has occurred. A lot of times they don’t actually date a recession till after it’s already started, and sometimes after it’s already ended. So if you think back in COVID time, they came out and said, hey, a recession started. I mean, I forget exactly when they did it, but it might’ve been like in June. They were like, hey, a recession started in March and ended in May or something. So that data is not always useful, but yeah, at some point we will have a recession. I tend to still think that we’ll see some sort of slowdown over the next 12 to 24 months. But here’s what you do. So this is the key takeaway. Here’s how you prepare is, first of all, if you’re, I don’t know, 40, 50, 60, 70, know that you’re going to go through, on average, probably a recession every 3, 4, 5 years for the rest of your life, right? So, if you’re 60 years old, you might go through another 6, 7, 8 recessions in your life, right? So, if something happens every several years, you don’t panic, you don’t freak out, right? Recessions are always scary, just like bear markets are always scary, this time is different, etc. The time to prepare is ahead. You run through your cash flow planning. You run through your whole financial plan. You set yourself up so that you can survive. Your portfolio is allocated so if markets fall, you’re all right. You have liquid funds to live off of while the economy suffers. And you also realize that a lot of times stocks have fallen before the recession even occurs. So stocks are a leading indicator. So saying, hey, we’re in a recession, I’m going to sell my stocks doesn’t always work because a lot of times stocks have gone down. They’re coming up already, and now we’re in a recession. And so if you sell, it doesn’t necessarily work out. So figure out your financial plan, make sure you’re in a scenario where you can survive a potential recession, make sure that your portfolio is allocated appropriately. And then if markets get volatile, which they will, be tax aware. Right. A declining market or recession is a great time to reallocate your portfolio. It’s a great time to do tax managing of your non-retirement account. It’s a great time to do Roth conversions with assets that might have fallen in value. And there are other strategies as well.

Kathryn: Great. All right. Get back to it.

Brian: Let’s talk a little bit about international and US stocks. And so the purple here is times when European and Australian and Japanese, you know, foreign stocks have outperformed and the gray is times that US stocks have outperformed. And what you can see is you go in these big cycles where, hey, here’s 5 and a half years where international stocks did better. Here’s a couple of periods where US stocks, foreign stocks, and then this big, long run we had for US. And then in the last, I don’t know, couple of years, you’ve seen, international stocks begin to outperform again. And so I think it’s important to remember that these things come and go in waves. And when you look at it, it’s like, okay, well, again, getting back to valuations, here are the historical average. In general, foreign stocks are less expensive than US stocks, right? Just historically, but right now you can see down here at the bottom of the screen, they are significantly undervalued compared to their historical averages. Here’s another way of looking at it. Here’s relative valuations in Europe versus the U S. Right. The brown or the gray is your historical average. The purple diamond is where we’re at today. And what you see is that usually European stocks are less expensive than US stocks. Today they’re drastically less expensive. And so again, getting back to valuations and cycles, sometimes international stocks do better, sometimes US stocks, but right now we’re significantly cheaper in Europe than we have been over the last 25 years, it may make sense to, at the very least, don’t abandon your international stock allocation, maybe it’s even a time to consider adding to it. You’re not buying a country, you’re buying a company. And what I mean by that is, we could have a debate all day about whether to buy the US, Japan, Germany, or Italy. But if you want to buy car companies, I don’t know. Maybe you want to buy Ford, GM or Tesla. Those are US companies, but maybe also like Nissan and Toyota and Honda. They happen to be domiciled in Japan. You know, Germany makes some great cars. BMW, Mercedes, Volkswagen. How about Italy? Chrysler? Anybody want a Ferrari or a Maserati or a Lamborghini? Right? So it’s not just about do you want to invest in Italy or Germany? It’s do you want to own only Ford, GM or Tesla? Or do you want to own all of these auto companies? And by investing internationally, you get to expand into great companies in different industries that may not happen to be domiciled in the United States. One last point I want to make on stocks because and this actually is a good sort of circling back to that question about a potential recession. So there’s an old saying that markets climb a wall of worry, right? And this chart here looks at consumer confidence. So how good do people feel compared to subsequent stock market performance? And the takeaway here is that the better people feel, the worst stocks do in the ensuing months, and the worst people feel the better stocks do. Right? And so getting back to that question about a recession, when will we have one? Will things be good or bad? Again, who knows what the future is going to hold, right? If we were doing this and we probably did one of these, we could go back and play the tape at the end of 2019. I probably got up here and I talked about all this good stuff and you know what I probably didn’t mention during that? Was there was this little flu type thing that went around a couple months later, and if you remember, it disrupted a few people’s daily routines, right? I didn’t know back in December of 2019 that 3 months later, we were all going to be sheltering in place. I had never even heard that term. I didn’t know that the entire global economy was going to be shut down, right? And so things happen that are unexpected, but you can see here you are at, very low consumer confidence levels in April of 2020 because the global economy shut down, we’re all sheltering in place. But then stocks did pretty good after that. And the reason I bring this up is just as a reminder that if whatever happens in the coming year, that makes you feel bad. And if people generally are, oh, the things are bad and we’re worried and nervous and this and that, that usually lays the groundwork for a good stock market, not a bad stock market. Markets climb a wall of worry. And then finally, markets go up and they go down, right? And so here these gray bars are again, similar to the one I showed with bonds. These are the historical returns year by year. And then the red line is what- the red dot is what is the low point of that year? And you can see it almost every year stocks have had some sort of double digit decline along the way. Even this year, as of the time this was run, we were up 12% and you at one point we’re down 8%. Last year, we declined 19%, but you’ve hit a low of down 25%. You know, in 2020, you were down 34% on the S&P at one point, but you ended up 16%. So stock markets fluctuate. Just because at some point during a calendar year during a 12 month period, they fall doesn’t mean that they’re going to end there. So again, stocks are volatile. If you’re going to own stocks, you need to buckle up for the ride. That’s why you often compliment them with assets that produce a little bit more stable cashflow, that are a little bit more- less volatile, that might have less downside, you build a portfolio of different pieces designed to meet whatever you’re trying to accomplish. Let me pause there and take any questions on stocks or anything else that’s come up before I dive into the road ahead.

Kathryn: Okay, a couple things. One, how do you mitigate currency exchange risk when investing in international stocks? For instance, is there a US ETF or something like that?

Brian: Yeah, that’s a really good question. And so just to kind of put that into context, what happens is that if you’re in the US and you buy foreign stocks, if the dollar goes up, it all else being equal hurts the value of your international stocks. If the dollar goes down, it helps the value of your international stocks. Because at some point you need to convert that currency back into the US dollar. So most studies will say that you don’t want to hedge currency risk in international stocks, that different currencies you’re getting exposure to provide additional levels of diversification and that over longer periods of time, it tends to get blended out the currency movements by the stock price movement, the profits, et cetera. So there are ETFs and mutual funds out there that provide currency hedged international stock holdings. Our view would be that you don’t necessarily want to do that. You want to say, okay, sometimes the currency is going to help you. Sometimes it’s going to hurt you, but you’re just going to get that pure exposure. Bonds are a little bit different if you’re buying international bonds. Just because of the volatility level, the currency does tend to have an out- outsized impact there. So we do recommend using hedged vehicles for the most part in international bonds, but not in international stocks.

Kathryn: Okay. And, if someone’s 62 years old, what should be their balance? How much in stocks and how much in bonds should they have?

Brian: Some and some? I don’t know.

Kathryn: I just wanted to ask the question so that you could- because that’s been a kind of a common theme here.

Brian: Yeah, no, and it brings up a really good point is that age is just a number, right? And we’ve all heard that in a bunch of different context, but there’s no magic bullet that there’s a rule of thumb that hey, you take a hundred minus your age and that’s the percent that goes in stocks and the rest goes in bonds or something. That’s just a rule of thumb because it really depends on what are your cash needs from the portfolio? Right? What kind of return do you need to not run out of money before you run out of breath? What other income streams do you have? What other assets outside of the portfolio do you have? Are you still working? Are you gonna work part time? So there’s a whole host of variables that go into it. I don’t know. Maybe you have legacy goals and you have enough income. I mean, somebody that’s 80 or 60 could have 100% of their portfolio in stocks because they have a pension that covers all their spending need and they want to build their wealth as much as possible for their grandkids. Right? Somebody that’s 40 could have all their money in cash and bonds or a lot of it because even though they’re only 40, they want- they’re a FIRE person, Financial Independents Retire Early, and they plan to start traveling the world in 18 months and they’re going to have to draw down all of their savings. So it really depends on what are your goals? What’s your risk tolerance? What kind of return do you need? et cetera. And that really circles back to the planning and why it’s individualized for each person rather than just a number.

Kathryn: Also, you didn’t really touch on this, but someone’s asking, so if they haven’t had a chance or opportunity to move money into a tax-free account, a Roth, is it ever too late?

Brian: No, I don’t think it’s ever too late. I mean, there are times that it’s better or worse. But again, this is something that you could come up with rules of thumb, but it’s really individualized to the person. And so what Kathryn’s talking about is Roth conversions. The idea of if you’ve built up money in a pre-tax, tax-deferred IRA, 401(k), etc., you can take some of those dollars and move them to a tax-free Roth. When you do that, you pay taxes, right? Nobody likes paying taxes, but the idea is that you pay some tax today to get control over your income as it comes back to you down the road to keep the government from forcing it out to you and to, you know, potentially save a few bucks in taxes in the long run, right? A lot of times it makes more sense to do it when you’re in lower income years, but it really comes down to mapping out, what in the future are your tax brackets going to be right? How much money do you need to move out of that tax-deferred account in order to avoid pushing yourself into higher tax brackets and give yourself a level of control. And then running a current year tax projection for how much should you convert this year, next year, etc. So again, it’s individualized and customized, but I don’t think it’s ever too late. It’s really just a matter of what levels, how much, and frankly, it doesn’t make sense because for many people, the answer is yes, but for some, it’ll be no. Just keep in mind that the deadline for doing a Roth conversion is December 31st.

So if that’s something that you’re thinking might make sense, you don’t have much time now to figure it out for this year. If you don’t get it processed by December 31st, you’ve missed your opportunity for 2023. And so it’s one less year of conversions you could do. Again, if we’re running tight on the calendar. But, if you work with an advisor here at Pure, reach out to your advisor. If you haven’t already, you probably have to talk about it. If you’re not a Pure client and you want us to take a second set of eyes on it, we do offer free financial assessments out of this. You can come in and we’ll give you a second set of eyes on your tax situation and investments and whatnot to see if those kinds of strategies make sense. I wanna talk a little bit about the future, and this is a bar chart just showing how much time it took to get to 100 users in months for things like WhatsApp, Facebook, Snapchat, TikTok, and you see ChatGPT. And that’s really been one of the major stories this year, is artificial intelligence, which has been around for a number of years, but really exploded to the forefront of the public consciousness here in the last 12 months or so. And really with an adoption rate that’s on parallel from other emerging technologies in recent memory. So the question becomes, how is this going to impact our lives? And I’m not a technologist, so I can’t say with certainty. My guess is that artificial intelligence will affect our lives in many, many ways and in ways that we can’t even imagine. And will probably have an impact on par with the Internet as far as how it will affect society and our lives. But keeping it to the investment perspective, it’s like, how do you invest? And you’ve seen the rise of those 7 companies I talked about. The big technology companies is largely driven by AI and the idea that Nvidia or somebody like that is going to profit from this. And so their stocks have gone up. I think what the next interesting thing will be, it’s not so much just companies that provide AI tools, but it’s going to be companies across a broader swath of industry, as far as how do they incorporate it, right? So if you’re I don’t know- I’m completely making this up- but let’s say that you’re Wells Fargo and you replace all your bank tellers with holograms that when somebody goes in, they interact with the hologram. So excuse me, Wells Fargo no longer needs human tellers and all of a sudden their costs drop and they’re much more profitable. So the stock price goes up. That’s a little bit of an absurd example. But you get the point where I think there’s a lot of uses for AI that may not all become apparent right away.

But over time, as companies figure out how to become more efficient, through the use of AI had to deliver interesting goods and services because of it. There will be winners and losers, but it’s a little bit hard to identify. The one thing I say with every new technology I talk about is this, is for anybody that’s driven recently in a major metropolitan area, you’d probably agree with me that the auto industry has been pretty successful, right? There’s- you’ve sat in traffic and you’re like, Oh God, there’s a lot of cars. Auto industry has been pretty good. You go back to the 19- to the year 1900. Since then, there’ve been about 3000 auto companies in the United States. I believe there’s only two or 3 of those that have never gone bankrupt. Right. And so if you look at it, you can say on the one hand, if in the year 1900, you said, hey, autos are the future. I want to invest in that industry. You would have been absolutely 100% correct. But picking the winners along the way and actually profiting it from it would have been much, much more difficult.

And the reason I bring that up with AI or any new technologies, I think it’s pretty clear. You could say AI is going to be massively impactful. I mentioned blockchain before, whatever else. The question with any company always becomes, I mean, over here, Facebook, if we’re talking social media, is whatever company you’re focused on in the AI space. Is it Facebook? Or is it Facebook? Or is it MySpace? Right? MySpace, early adopter, early leader in the social media world, but not around anymore, right? And so I think it’s one thing to identify key industries for the years ahead. It’s another to identify the winners. I want to talk a little bit about geopolitics, and I won’t go too far down here. This is just a little map of Europe. And, you know, as we’re all aware, the war between Russia and Ukraine continues. We’ve also seen obviously an unrest in the Middle East and Israel flare up and whatnot. So there’s always horrible things that go on in the world. And the reason I bring this up is that those things are going to continue. I saw a recent survey of institutional investors that predicted the biggest market mover- the biggest story next year will be geopolitics and continued unrest around the world, and I don’t necessarily disagree. However, keep in mind that most of the time, no matter how horrific, no matter how impactful geopolitical events are, most of the time their impact on markets is relatively limited. So even if you think of Russia and Ukraine, it had a really big impact in a short period of time on energy prices. And wheat prices, because Ukraine’s a huge wheat provider. But within a month, markets had shifted their attention to whatever was next. And so even though the war goes on, markets on a daily basis aren’t even really looking at what’s happening in Ukraine. They’re focused on other things. And that’s the case with most geopolitical events. And so you know, I think as an investor, one of the tasks that’s really important to focus on is to look at the world, be aware of what’s going on. Think about what the potential impacts may be, but also set aside personal feelings, views, positive, negative, etc., and focus on. Okay, not the way the world should be- the way it is. What is the actual impact or the likely impact on financial markets and then act accordingly? I want to talk a little bit too- we talked earlier about currencies and one of the things people talk about is the BRICS. And so the BRICS, started as BRIC, B R I C, Brazil, Russia, India, China, started by, the acronym was a guy named Jim O’Neill over at Goldman Sachs, I think it was like 2005, 4 big emerging market countries. South Africa was subsequently lopped in with them. and over time, they formed a loose association. There’s a lot of these things around- different trade unions, regional groups and the like. And so the BRICS, this group of large emerging market countries that comes together to discuss shared agenda and whatnot, shared issues and challenges. This year, in the Fall, they added these other countries that you can see on the side here, Saudi Arabia, Iran, and so on. So now there’s a number of large emerging market countries. And they’ve been talked that they’re going to issue a currency that’s going to compete with the dollar and whatnot. So we’ll see what happens. But think about it like this, because you might see headlines coming out of this about the BRICS competing with the US or with the EU or the UN or this or that. But from a strictly economic perspective, are these big countries? Yes. Do you want to issue- to buy a currency issued by them? Well, I don’t know. Right. I mentioned China and their creativity with their economic statistics when they don’t like what they said. How about Russia? Well, Russia is locked out of the global financial system because of the invasion of Ukraine. Brazil has had 7 different currencies since the 1980s. Do you want to try buying number 8? I don’t know. Argentina, not that long ago had 3000% annual inflation. We’re upset in the US by 8% inflation. They had 3000% right? You go through Iran and Saudi Arabia, our strategic rivals. And so the idea that all of these countries are going to come together, share economic systems and issue a currency that thrives. I think it would get headlines, right? Hey, you know, there was a trade agreement for $200,000,000 in this currency or between these countries. Yeah. And it would get a lot of excitement. The idea that it’s going to displace the dollar or have a major impact on the global financial system in the next 12, 24, 36 months, I think, is a non-starter. And finally, and I hesitate even to flip to this slide before we wrap up. Some of you may be aware that there’s another election coming up. And, you know, every time there’s an election, it’s like, buckle up, it’s going to be fun. It’s the most important election of our lifetime. I’ve heard that everyone since I think I turned 18, right? This is a chart of the House and Senate leadership, whether blue being Democrats, red being both houses controlled by, by Republicans and purple being a mix of, the House and Senate being split. What you see is that pretty steadily since the 1920s, markets have gone up under a variety of regimes. I have a similar chart for presidential elections where the reality is that there’s no impact, broadly speaking between whether Republicans, Democrats are in charge or there’s a mix. I also have another chart, it’s not in here. But if you invested just under Democratic presidents, if you invested just under Republican presidents versus if you invested across both, and the change in wealth, if you just invested under one party, as opposed to both is drastic. So the bottom line again, similar to what I mentioned geopolitics is I’m sure that we all have our views on who we want to be elected. Do we want it to be you know, Biden, Trump, somebody else, none of the above, whatever. But again, focusing on from a vote and this and that perspective, what we can control, but then stepping back and saying, okay, what’s the long term impact on financial markets?

I mean, just circling back a couple of elections ago, I still remember, there was a thought that Hillary Clinton would win the presidency in 2016, and then Trump kind of surprisingly won. And as it became clear he would, stocks fell pretty sharply overnight, and then stocks wind up having a pretty good run, during much of his presidency. And so again, a lot of times there’s knee jerk reactions and we all have our own views on who we do or don’t want in office. But I think the reality, and I always go back to the data, the data is that markets have done quite well under a variety of regimes. We’ll talk far more about this. I’m sure that we’ll put out some written content and do webinars and stuff on the election on particular issues that do affect financial markets as we draw closer to the Fall. I always like to put this up, especially during turbulent times heading into an election year, just as a reminder that the media’s job isn’t to convey the news. It’s not to give you the facts, it’s to generate emotions, fear, excitement, anger, whatever it is, in order to make you keep watching. And so be really careful.

It’s okay to absorb the news, of course, but be careful with what you take from it and the impact it has on your financial decision making.

Kathryn: Pure Financial Advisors has 4 offices in Southern California. We have a new office in Denver, Seattle, Chicago. You can meet with an experienced professional anywhere- anywhere from the United States- in the United States, because we have zoom, just click on the link and schedule your free financial assessment for a day and time that works best for you, Brian. Thank you so much for your time. This has been very helpful, very informative, and you have a lot of great insight.

Brian: Cool. Well, thank you. Pleasure all and happy holidays. And I look forward to connecting with some of you, probably not on Christmas, but over the, over the holidays and then into the new year.

Kathryn: Thank you so much. Happy holidays to everyone.

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