Political polarization, bank failures, recession concerns, terrorist activity and global military conflicts were all troubling issues that weighed on the minds of investors last year. However, financial markets showed resilience, stock markets climbed, and for many investors, portfolio returns turned out to be satisfactory in 2023.

A group of technology-focused companies, commonly referred to as the Magnificent Seven – Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla – had an extraordinary year, with each stock returning 49% or more. “Mag 7” returns comprised the bulk of the S&P 500 Index’s full year gain of 26%.

Bond returns were less ebullient, but still positive – breaking the trend of two consecutive years of negative returns in 2021 and 2022. The Bloomberg Aggregate Bond Index, a benchmark for bond performance, returned 5.7% in 2023.

Below is a snapshot of stock and bond returns by quarter for 2023.

As often is the case, reality differed significantly from projections.

With the turn of the calendar to 2024, there’s a whole new narrative by the smart-set forecasters. Today’s commonly held views about the US economy and financial markets are:

I think this is all quite reasonable. It’s helpful to begin a year by setting expectations, and the ones listed above are modest and fall well within the realm of possibility. But no one really knows what shape the economy, or the financial markets, will be in a year from today.

When writing to his clients during the financial crisis of 2008, Howard Marks, the Los Angeles-based money manager, shared his favorite quote from the esteemed economist John Kenneth Galbraith: “There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.”

As a financial advisor, it’s good to keep this in mind. It’s also important to draw from past experiences and seek to understand what’s going on in the current environment, to provide the best possible guidance to clients on what is likely to happen in the long term.

Below, I’ve presented a table of returns related to Stocks, Bonds, and Cash, which are the main building blocks for many client portfolios.

You’ll also notice that projected returns for the Next 10 Years* (last column, blue font), from JP Morgan’s extensive Long Term Capital Markets Assumptions study, are moderate and more in line with the long-term historical experience (25 Years) than returns realized in more recent years.

While these statistics are informative, a picture can often provide additional clarity. The graph below presents another view of the long-term return experience for stocks, courtesy of Capital Group.

The picture catalogues many scary (and some tragic) events that have happened during the past thirty-five years, superimposed on the value of a standard global stock market index.

If you narrow your vision to a particular segment of the graph, you’ll see the stock index line swinging up and down, with many unfavorable outcomes in shorter periods corresponding to unfavorable events. Over the short-term, buying stocks seems to be a hit-or-miss activity.

But if you widen your vision to take in the whole graph, you’ll see episodes of volatility as part of a long-term, upward sloping, positive trend. If you decide to own stocks for the long-term, the odds of a positive result move decidedly in your favor.

There likely will be surprises in 2024, and we can imagine that some of the potential outcomes might translate to unfavorable results for your portfolio. It’s advisable to be prepared for downside scenarios.

But I also recommend that you ready yourself for a ho-hum year of pedestrian returns, as well as another year of terrific performance. By taking this approach, you’re mentally prepared for whatever unfolds in the year ahead.

Investors should focus on staying invested and diversified rather than reacting to surprises that come out of left field. Sticking to a financial plan that is designed around long-term goals, and a portfolio that supports the realization of those goals, remains the best way to achieve financial success.

The race to win the White House in November 2024 is now in full gear. For anyone who’s accustomed to reading the news, watching TV, or engaging with social media platforms, the font of information on this topic will overflow as we approach November.

At this point, the Presidential election seems to be headed toward a 2020 rematch. The outcome likely will be consequential in many areas, including for the tax and investment environment for individuals and businesses.

I recognize that the political landscape is a keen area of interest for many of you, so when I have insights to share, I’ll include them in the client letter.

Recently, I had the opportunity to participate in a conference call hosted by Goldman Sachs, which featured a leader in the bank’s Office of Government Affairs.

In 1999, author Michael Lewis published The New New Thing: A Silicon Valley Story, about Jim Clark, a technology entrepreneur who helped launch the age of the internet. Also in that year, technology stocks (as measured by the Nasdaq index) rose by 86%. The following year, as the internet bubble burst, the Nasdaq plummeted by 77%

Since its launch in 2009, the cumulative price increase of Bitcoin has been astounding: a mere $100 purchase of Bitcoin in 2010 would be worth millions today.

But the year-to-year price return of Bitcoin during the past half decade has been noteworthy for its wild swings, more akin to the tech stock experience of the late 1990s – early 2000s. In the crypto crash of 2022, the Bitcoin price declined by 65%. More recently, the price has climbed by a similar amount.

Until this year, owning Bitcoin has been more challenging than buying stocks or bonds. Typically, Bitcoin aficionados needed to do things like create a digital wallet or open an account on a specialty crypto exchange to hold their coin.

The “New, New Thing” in 2024 is that Bitcoin can now be bought and held in a standard brokerage account or IRA, just like a run of the mill stock, bond, or mutual fund.

On January 10, the US Securities and Exchange Commission (SEC) authorized eleven applications to offer exchange-traded funds (ETFs) tied to Bitcoin.

Since the question of “can I buy it?” has been answered with the advent of Bitcoin ETFs, more investors may now be asking “should I buy it?”

We encourage our clients to think long-term and prioritize well-diversified portfolios that support their financial plans. It’s not a crazy notion to think that allocating to Bitcoin would add to the diversity of a portfolio and might contribute to wealth creation over time.

Some market practitioners equate Bitcoin to “digital gold”. Actual gold has been recognized as a store of value for centuries due to its durability, fungibility, and scarcity. While fourteen years probably falls short of a true durability test, Bitcoin does check the boxes of fungibility and scarcity, so the digital gold claim is not without merit.

Other folks are turned off by the idea of Bitcoin because of its association with illicit transactions. Since it is possible to hold actual Bitcoin in a wallet that is delinked from an exchange and not hooked up to the internet, cryptocurrency is a favored medium of exchange for malefactors.

The question of “Should I buy it?” is best considered through a lens of personal values and preference. A more appropriate question for an advisor to answer is “Must I buy it?”

For most individual investors, some mix of stocks or stock funds; bonds or bond funds; and short-term investments are appropriate and required to meet long-term financial goals. Stocks, bonds, and short-term investments are the must-haves in a typical investment portfolio.

Stocks provide an important growth element. A stock’s price is influenced by the profitability and sustainability of the enterprise that issues it. Over the long-term, there is a high likelihood that a diversified stock allocation will exceed the rate of inflation and enable the holder to maintain or improve their purchasing power.

Bonds and bond funds deliver regular income and often act as an offset when stock prices stumble. Bonds are contractual arrangements that promise their holders income and return of principal. Short-term investment funds also include contractual arrangements and typically provide stability with modest returns.

Commodities, on the other hand, are not tied to profitability of an entity, nor are they contractual arrangements that promise a return. Commodities are economic goods with fungibility whose prices are influenced primarily by supply and demand and are often the subject of speculative activity.

As such, we don’t include commodities directly as elements of investment portfolios for our clients: no gold ETFs, no oil ETFs, no funds whose sole purpose is to have direct exposure commodities. Since I view it as a commodity, Bitcoin is not a portfolio “must have”.

Another twist on the cryptocurrency narrative is its treatment under the law. The Commodity Futures Trading Commission treats cryptocurrencies as a commodity; the SEC argues that certain cryptocurrencies should be considered securities; and the Internal Revenue Service treats crypto as property.

While the latest Bitcoin ETFs won’t be popping up as a constituent in our model portfolios any time soon, you should know that digital assets are being viewed very seriously as investment vehicles by many large institutional investors.

Also, cryptocurrencies offer interesting technological applications that are being explored by financial institutions and even by central banks.

At a minimum, it’s worthwhile for informed investors to have some perspective on developments in the digital asset space. If you have questions, please send them our way.

The laws that stipulate how we must handle our personal tax situation are complex and dynamic. Changes can be built into existing statutes and shifting government priorities can also lead to adjustments to the rules.

For example, SECURE 2.0, the 2022 law designed to bolster retirement savings, has over 90 provisions with different effective dates.

Staying on top of what’s new in tax, and making the most of the changes, is an important part of the financial picture for most individuals.

After Congress approved some major changes to the Free Application for Federal Student Aid (FAFSA) a few years ago, the US Department of Education has taken years to fully implement the changes and overhaul the FAFSA form.

The target date for release of the new form, October 1, 2023, was missed.

The Department of Education then announced a “soft launch” by December 31, meaning that the form would be open by December 31 at the latest (it opened that day for two hours), but also be intermittently closed from time to time for review and maintenance.

These fits and starts have caused students, families, and financial aid offices to play the waiting game and adjust their financial aid timelines.

New York Times columnist Ron Lieber’s article I Spent New Year’s Eve Trying to Do the FAFSA. It Didn’t Go Well, published on January 1, summed up some of the frustrations experienced by families trying to complete the FAFSA form when it opened at the end of December.

Many of the kinks, as of mid-January, now seem to have been worked out.

While families should complete the form as soon as they can, they should not worry about getting it done immediately.

The US Department of Education has indicated that it will not be sending the information to schools until the end of January at the earliest. So, it may be best to wait a week or so more to ensure a clear path to completion.

Some schools award non-need-based grants and merit scholarships only to students who complete the form. Also, this is the only way to take advantage of using the Federal Student Loans if you intend to do any borrowing for college.

To complete the 2024-2025 FAFSA form, go to https://studentaid.gov/h/apply-for-aid/fafsa and click on the link “Start New Form.”

After completing the FAFSA form, watch for an email from the US Department of Education with the “FAFSA Submission Summary” (previously called the Student Aid Report) which has information about your FAFSA application.

Also, watch for school communications from colleges your student has been admitted to and to whom they have sent the FAFSA. Schools will begin sending out financial aid offer letters once they start receiving and processing the FAFSA forms from the Department of Education. If you have any questions regarding these offers, contact the financial aid office at the school. Timelines at each school will vary, especially with this year’s delays.

If you would like information on how we can help your personal situation with our college planning service, please sign up for a free 30-minute consultation on our website.

For additional FAFSA and college planning please see our College Planning Articles on our website Blog.

For people accustomed to relying on intuition and ‘trusting their gut’, the question How Will You Measure Your Life? might seem strange. Is it possible to measure one’s life? If it is, how would one approach the task? And anyway, is life worth measuring?

On the other hand, for quantitatively oriented individuals, the idea of not measuring everything that can be measured may seem odd. Measuring provides information, information allows for analysis, and analysis enables optimization. Who doesn’t want to lead an optimized life?

Innovation expert Clayton M. Christensen spent his life studying businesses and how people behave in business settings. He was troubled by his observation that people with great potential (his Harvard Business School classmates, for example) often made choices that resulted in disharmony and unhappiness in their personal lives.

In How Will You Measure Your Life?, Christensen refrains from recommending that we measure everything in our lives that can be measured.

Rather, he suggests that we can use theories which have been rigorously examined and used in organizations all over the globe to help us with decisions that we must make as individuals.

The book seeks to answer the question: “How can I find happiness in my career?” But it gets at deeper issues, guiding us to consider what it means to lead a fulfilling life, and offering frameworks for helping the reader find fulfillment.

Best regards,

Rob