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  • Writer's pictureColumbus Wealth Management

Columbus Wealth Management Quarterly Update - 2023 Q1

Updated: Apr 5

Welcome to Columbus Wealth Management’s first Newsletter! In our annual client survey, our clients indicated they would like to see a recurring newsletter from us. Accordingly, we will be doing quarterly newsletters going forward to keep you updated on our firm, the markets, and other relevant issues. We will also include a current educational topic for our clients who want to understand what we are doing in more detail. For those of you who are not working with us, please reach out if you feel you could benefit from these strategies. We hope you enjoy, and as always, please don’t hesitate to contact us with any questions or feedback!


Personal Updates

On December 21st, 2022, Nick and his wife Kelli welcomed Maxwell (Max) Jeffery Daniel into their family! He was born at 6lbs, 4 ounces, and nearly 4 months later he is very happy and healthy, as are mom and dad! Matthew is very excited to be an uncle, too. Nick, Kelli, Max and their Labrador Retriever, Bentley are all pictured below (or Bentley’s tongue, anyway!).




Matthew accepted the Finance Director position on the Board of Directors at Stonewall Sports, Columbus in February of this year. Stonewall Sports is a non-profit organization that aims to provide an inclusive, low-cost sports league while giving back to our community.


Firm Updates

Website

Check out our recently updated website at www.cbuswm.com! You’ll notice a few big changes, including:

  • Home Page - We’ve added logos (with hyperlinks) for a few of the major associations we belong to. You can learn more about these by following the links on our website, and we’ve also included a short description below in case you would like to learn more:

    • CFP® - For more than 30 years, the CERTIFIED FINANCIAL PLANNER™ certification has been the standard of excellence for financial planners. CFP® professionals have met extensive training and experience requirements, and commit to CFP Board's ethical standards that require them to put their clients' interests first. See Matthew’s CFP® Profile HERE.

    • Chartered Financial Analyst (CFA)- The CFA Program is a three-part exam that tests the fundamentals of investment tools, valuing assets, portfolio management, and wealth planning. The CFA Program is typically completed by those with backgrounds in finance, accounting, economics, or business. CFA charterholders earn the right to use the CFA designation after program completion, application, and acceptance by CFA Institute. CFA charterholders are qualified to work in senior and executive positions in investment management, risk management, asset management, and more. See Matthew’s profile in the CFA member directory HERE.

    • The National Association of Personal Financial Advisors (NAPFA) – For nearly 40 years, NAPFA has been the standard bearer for fee-only, fiduciary financial advisors advocating for high professional and ethical standards. Working in a strict fee-only, fiduciary capacity, NAPFA-affiliated financial planners are committed to maintaining the highest level of competency with a client-centered focus that means aligning solely with their client’s interests. See CWM’s NAPFA profile HERE.

    • FeeOnlyNetwork – Fee-Only financial advisors are small business owners, shareholders, and employees compensated for their time and expertise in comprehensive financial planning and investment management. They are not representatives of brokerage firms or insurance companies, and never make commission or kickbacks. Fee-Only advisors work only for you under a crystal clear fee structure and fiduciary oath. See CWM’s FeeOnlyNetwork profile HERE.

    • XY Planning Network – The XY Planning Network is the leading organization of fee-only financial advisors who are skilled at serving Gen X and Gen Y clients. Their mission is to connect consumers with best-in-class financial advisors who specialize in working with clients just like you. See CWM’s XYPN profile HERE.

  • Media Quotes - Near the bottom of our home page, you will see a new section with links to major publications where CWM associates have been quoted! More to come!

  • About Page – We’ve streamlined this page to give an overview of our firm first. You can then learn more about Matthew and Nick individually by clicking on our photos. On our individual “About” pages, we’ve added a slideshow at the bottom with pictures of us spending time with family, friends, and some of our favorite activities.

  • Newsletters – All CWM market updates, newsletters, and similar media will now be available on this page.

  • Client Portal – We continue to make enhancements to our client portal, including the mobile app which can be found on the Apple App Store or Google Play platform. We hope you’ve found this helpful in keeping track of your financial life. Links to the web portal and portal apps can be found in the menu of the website.


Client Referrals

Many of you have gone out of your way to help us spread the word by referring friends and family, leaving us a Google Review, and more! We are beyond appreciative and want to recognize all our clients, friends, and family who have played an integral part in helping us grow Columbus Wealth Management in its early days. We wouldn’t be where we are without your support!


Educational Topics

Tax Time!

The tax filing deadline is quickly approaching on Tuesday, April 18th. Did you know:

  • You still can make IRA and Health Savings Account (HSA) contributions for 2022? Do this by the April 18 deadline. 2022 limits for these:

    • IRA: $6,000 ($7,000 if over age 50)

    • HSA: $3,650 Individual, $7,300 Family. $1,000 additional available for those over age 55

  • For 2023, the limits have increased:

    • IRA: $6,500 ($7,500 if over age 50)

    • HSA: $3,850 Individual, $7,750 Family. $1,000 additional available for those over age 55

    • 401(k): $22,500 ($30,000 if over age 50)

  • Were you surprised by your tax refund/bill due, or by the 7% interest penalty applied to your underpayment? We can partner with your accountant to help you understand these rules and implement new strategies to help avoid negative outcomes.

  • Each year, the Wall Street Journal releases a tax guide with helpful information for all tax filers. Access the free publication HERE.


Market Update & Investment Commentary

In the first quarter of 2023, we saw a 7.5% gain on the S&P 500, and a 2.96% gain in bonds (as measured by the Bloomberg US Aggregate Bond Index). This marks a significant recovery after a very rough 2022 for nearly all major asset classes. As inflation has started to come down and we’ve started to see some cracks form in the economy (especially in the banking sector) investors are hoping we are nearing the end of the Fed tightening cycle and are pricing in rate cuts in 2024 (or perhaps even earlier).


We share the view of most experts that the economy and capital markets remain fragile, and that we could very well end up in a recession. The risk of recession increases if the Federal Reserve continues to aggressively raise rates in attempt to bring down inflation, as doing so will likely have additional fallout extending beyond bank failures in the form of additional layoffs, higher overall unemployment, and therefore reduced consumer spending and corporate earnings. However, we continue to believe that such a recession will be mild compared to prior cycles. Below, we examine two metrics that are key in this cycle: Inflation and Gross Domestic Product (GDP).

  • Inflation – We’ve already seen inflation come down significantly. In June of 2022, we saw a shocking year-over-year inflation number of 8.9% (Consumer Price Index, U.S. Bureau of Labor Statistics). In February of this year, we are down to 6%. The next number will be released on April 12th and is expected to be in the mid-5% range. The Federal Reserve has a long-term target of 2%. As the inflation trajectory continues to improve, the Fed may not see the need to remain as aggressive with rate increases, which should reduce the severity of a recession if we don’t avoid one altogether. Investors and the Fed will also have their eye on wage growth, other employment indicators, and business spending as weakness in these areas (layered on top of recent banking issues) could cause them to rethink plans for rates sooner than expected.

  • Gross Domestic Product (GDP) – A recession is often defined by two consecutive quarters of negative GDP growth, which of course then affects corporate earnings and portfolio returns. It’s also helpful to examine the various components of GDP and the current state of each:

    • Housing – Existing home inventory remains very low, as many homeowners secured mortgages during the pandemic (or earlier) at historically low rates. Selling their home and buying a new one means having to obtain a new mortgage at a rate that may be 2-3 times their current rate, which drastically affects the affordability of a new home. While low housing inventory is usually good for home builders, it’s hard to fight the headwind of high rates as construction costs are keeping the prices of those homes high and therefore not helping to offset the effect of higher mortgage rates. However, we don’t see a major bubble here as home building never got as strong as it did prior to 2008, and therefore we don’t have a huge inventory of unsold new homes to add to the severity of a recession. Additionally, multi-family housing starts are still quite strong due to high demand for rental properties (amidst lower demand for buying).

    • Federal Spending – As we’ve wound down the fiscal stimulus programs launched during the pandemic, federal budget deficits have declined significantly. This also means that consumers don’t have the excess cash to fuel higher spending (more on that below). Furthermore, student loan payments are likely to resume this fall, which will further add to the cash flow strain of the average consumer.

    • Consumer Spending – This category represents more than 2/3 of total GDP. While a collapse in consumer spending isn’t anticipated at this point, it is likely to slow down, in part due to the factors outlined in the Federal Spending category above. Consumers used pandemic stimulus checks to pay down debt and increase spending, but as consumers have tried to maintain their standard of living post-stimulus and amidst high inflation, savings rates have decreased, and credit card balances have gone back up. This isn’t sustainable (consumers can’t increase credit card debt forever), so spending will have to slow down at some point. A strong labor market has helped keep consumer spending afloat, for now.

    • Business Spending – Banks are well capitalized overall, and regulators are determined to save any institutions that are exhibiting problems. This should help ward off bank related panic, which allows time for institutional portfolios to recover (particularly their fixed income portfolios as interest rates start to moderate). However, a bigger issue with banks: lending conditions are tightening. This can affect the ability of small businesses to obtain capital to fuel growth via capital spending and hiring.

Equity valuations (as measured by the S&P 500 forward Price/Earnings ratio) are at 17.81x as of March 31st, vs. a 25-year average of 16.8x. We saw this come down significantly in 2022 (after a peak of nearly 23x), as we observed a steep decline in equity prices with only a modest decline in earnings. Additionally, on the other side of this cycle, we are likely to see an environment of low inflation once again, lower interest rates and slow/steady growth which we know is favorable for equities and bonds alike.


As always, our advice is to remain patient and disciplined – market timing is not a winning strategy in the long run. Below, we share one of our favorite slides from JPMorgan’s quarterly “Guide to the Markets”, which illustrates the difficulty associated with picking the “winning” asset class in any given year, and instead suggests that the balanced portfolio (the white “Asset Allocation” square) can offer far more predictable results over time. We encourage you to reach out to us with any questions or concerns.




Sincerely,


Your team at Columbus Wealth Management

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