April's Market Update with John Chidwick and Chuck Foresyth, CFP®

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Hello and welcome to the Signature Wealth Strategies Podcast. I'm your host Chip Munn, and today we're having a special episode with two of our esteemed financial advisors, John Chidwick and Chuck Forsythe. Gentlemen, thank you for joining me today.

Mr. Munn, how are you, buddy?

I am great. How about you, John?

Doing good, doing good. You're on spring break, aren't you? And you, you took time out of your day to, to be the host here. You must really love these type of meetings here, podcast, to break free for Chuck and I.

I love these, and, and I also love being away from spring break. Uh, spring break's not nearly as much fun after you're, I don't know, 21, 22 years old.

Thank you, Chip. We just got off spring break, me, Gail, Gabby, and my mom. Um, went on a little cruise for a week, and, uh, my mom's first cruise in her entire life, and it was just such a such a great event.

Yeah, that's awesome. I'm a fan of cruises as my kids have gotten older because I don't have to worry about losing them, but I can also let them be a little bit free, you know what I'm saying? Let's kind of jump in. Uh, first off, I want to just talk about the market. It's been an interesting first quarter. Um, John Cho, kind of give me your thoughts on the current state of the market.

Well, I heard, I heard a statistic, and I don't mean to jump right in Uh, Chuck, but I did want to share, you know, it was another, uh, another 1% month was the headline. Um, but behind it was March was the 5th straight month that the S&P rallied 1% or more in a calendar month, and there have been 12 prior 5-month streaks of 1% monthly gains since World War II. And since then, the world— the S&P 500 was higher on all 12 times for a median gain of 10%, uh, 9.7%. So, you know, the market's been off to a really, really good start this year, as well as a good finish to last year. Um, after— I know, uh, in my newsletter at the end of the year, I wrote, you know, finally, finally it's over. You know, it was a 2-year sideways market, so we got to reap the reward of, you know, the market bouncing back finally in November, December, and to hit new highs, and then to continue into this year. It's been It's been pretty good.

I think it's also been a broad-based rally. You know, the first quarter was the best quarter we've had in the markets since 2019. And unlike 2023 where you just had it dominated by the Magnificent Seven or large-cap growth, what you saw in the first quarter was almost a broadening out of the, the rally of the bull market with value stocks, equal-weight S&P, Equal weight tech actually doing well. So every single sector did well except for unfortunately fixed income.

Again, that's been interesting. I'm curious, one of the questions that I've gotten from folks who are in a balanced portfolio who have some of that fixed income, Chuck, is, you know, the stock market has recovered, but my balanced portfolio is, is maybe just kind of now getting back to where it was 2 years ago. It just seems like for the balanced portfolio, it's been a little tougher climb. What are you guys' thoughts as to why that is?

The hard questions I'm going to, I'm going to bounce to Chuck.

I don't blame you. That's what I do. And that's the benefit of having a partner for sure.

Yeah, I think, you know, yesterday I looked at 3 of the largest domestic and global 60/40 funds and the returns for the first quarter were anemic. They were roughly about 2.6%. To about 3.4%. So, so think about that, that drag on, on the portfolio of having 40% in bonds. If interest rates go up where we now see as of today, the 10-year Treasury hit its high that it achieved back in November. So that's going to send the price of bonds down. But the good news for those bond investors is this year the average coupon on many of those bonds is 5 to 6% versus last year it was 3 to 4%. So you're not going to see a negative drawdown too much. It's just going to be flat until we get closer into the Fed cutting rates. And I'll just end on this before I pass back to John. At the beginning of the year, the prognosticators out there said there, there could be 6 rate cuts by the Fed this year. And then after a month, that 6 went down to 3. And then you had, um, a couple of Fed people come on today and say it's going to be 1. So the higher for longer is there, but I think we're at the end of that negative return for fixed income.

Yeah, I agree 100%, um, Chuck, on, on looking at, uh, the portfolios. One of the things that, that is, is a positive and still a positive, and with rates going up, yes, there's, there's volatility because you're going to see some declines in some of the bonds. Um, I heard as, as much as 8 rate cuts, you know, in the beginning before the year started, and then went to 6, and now it's at 3, and And now who knows? I think predicting interest rates has been harder than predicting the stock market, whether it goes up or down. The fixed income environment has been harder to do, but money market rates are not hard. You know, you've got, you've got muni funds now that are paying 3.35% tax-free, which is starting to rival the money market funds depending on your tax rate. But money market rates are paying really nice rates, well above 5%. And if rates continue to go up, those will go up. Um, so you can battle it with that, you can battle it with CDs, um, you can use individual bonds, which we, we did a lot of. Um, we, we have, uh, you know, started to use a lot of bond funds in the portfolio again, uh, mostly short duration type stuff. And I won't get into the weeds on that, but I do know that, uh, Raymond James is still thinking that we're going to finish the year with a 10-year Treasury right around 3.75. And if they're off by by a little bit, or even as much as that, but a half a percent, we're still going to be okay to where prices are today. Well, you'll see appreciation in those funds as well as you'll get, you know, CD rates at good rates. You'll get individual bonds at good rates and it'll be a nice balanced portfolio. But if rates do come down to what they're saying, you'll have a nice return. You'll have an equity-like return from fixed income for the first time, you know, in a long, long, long, time. Um, and then on the equity side of things, you know, everything has participated, as, as, uh, Chuck mentioned, and technology is not leading for the first time, uh, in a while. Um, from a sector standpoint, you've got, believe it or not, um, communication services is led this year at almost 16%. Energy is number 2, which this even surprised me when I looked at it because that rally just came in the last 30 days, but up about 13%. And then financials is right there with technology, whereas technology did everything last year. You didn't have that. But 85% of the stocks are above their 200-day moving averages, and 60% of the S&P 500 stocks are positive for the year, which that wasn't the case last year. And 35% of the S&P 500 stocks are beating the S&P 500. So very broad. Mid-caps and small caps still have not really participated. You had a few rallies here and there as well as international. Um, but they're still much, uh, cheaper, um, and a much better value. And, and typically when this does happen, they do rally and they do return, um, and, and you should see, you know, outperformance in, in those, those areas where we've seen underperformance.

Yeah, when I got into the business in the late '90s, one of the, the things that I remember from the investment side of things— and as you guys know, I spend most of my time doing planning work, uh, not necessarily getting into the weeds portfolios like you guys do, but there was an old saying, don't fight the Fed and don't fight the tape. And I think that we're seeing some of both of that right now. Uh, you know, if you tried to fight the Fed last year or the last 2 years, it's been really challenging because the rates have been going in the wrong direction. Again, depend whether you're an investor or a saver, it matters. But it also cuts both ways, right? When those rates start to come back down— and I don't remember the latest statistic. But generally speaking, when the Fed moves in one direction or another, it's at least 3 consecutive moves in either direction. And so between that and, and again, not fighting the tape, the momentum of the market as a whole, I, I think both you guys touched on, and I'm super pleased about myself, is the broadening of the rally, uh, which at least to me suggests that we may have kind of, you know, longer to go. So let's go a little bit into you guys and your value proposition. You elaborate a little bit on Signature Wealth Strategies, what sets you guys apart from other advisory firms. Yeah.

And I think John and I, we talk about this a lot with our clients. And in fact, I was just— I was at church today and someone was talking about their advisor or their team and what they do and And what we do is uniquely different where we're actively managing the portfolios. We're looking at everything from a fiduciary standpoint because we're fiduciaries for our clients. So what that means is we're doing everything we can that's in the best interest for our clients. And one of the things we'll do is we'll do fee-based planning, fee-based investment portfolios, but we can also open up commission-based because believe it or not, sometimes buying a individual bond and a commission saves the client money. So we're always looking at what's best and what's the right fit for each particular client. And those plans and those strategies are built out on an individual basis as fiduciaries. John, you want to hit some more on that?

Yeah, I would just say one of the things that's kind of misunderstood or people don't understand is having discretion on the portfolio and being able to do When Chuck says active management, I think people think that all their portfolios are being actively managed, but in many cases they, they're not. Because if, if the advisor does not have discretion on the account, then they can't go in on, on your behalf and make a change. Um, they can't go in and just move out of, you know, one stock and go into another stock, or move out of one fund and go into another fund. Or if the Fed says that they're going to raise rates 8 times and it's going up 550 basis points and we don't want to be in long-term bond funds. You know, we don't have to call, um, 50, 75, 100 clients and, and make moves out of that. We can basically just go in and move those longer duration bond funds which we think are going to be affected by that, and we can go into money market, or we can go into individual corporate bonds, which we did, um, in many cases. And in a lot of cases, we also went into ETFs. But we can make changes on, on your behalf without having to pick up the phone and call. And quite frankly, it's impossible. I don't know how— I don't know how you could actively manage a portfolio if you did not have discretion on the portfolio. And that's one disincentive sometimes of doing the commission accounts too, is when you do commission, you don't have discretion. So you actually have to call the client to make that change, which is harder on us. But if I can get a client 6% instead of getting them 5%, I'd rather get 6%. So we'll, you know, we'll have a handful of clients that we do that for. And, and that's how we handle that. So that's a couple of different things that differentiate us for sure.

And, you know, because we're with Signature Wealth, who clears for Raymond James, we're independent advisors. So we're not in the old school brokerage model or bank model, which, you know, kind of forces us to do what they tell us to do. You know, John, yourself, we've all been doing this for over 20-plus years. So we do have that institutional knowledge to do the right thing in terms of portfolio construction. But we don't have to stick to what a company tells us to do.

After a year like we had last year and the year before with a lot of volatility where you had gains, losses, different times of the year, the ability to— if we're, if we're managing a lot of accounts, don't have just, you know, one IRA or one taxable account. They've got like 6 to 10 accounts with us and being able to, to do tax loss selling without, again, with having discretion and being able to look at all the accounts objectively and being able to look at which ones need to be offset by other accounts because you're looking at everything as a whole instead of individual accounts. And we manage them all separately, but yet we can look at them all together so that we can capture gains with losses. And so we can try and minimize the taxes and also capitalize on taking those losses when you can.

Yeah, and I, I think you, you touched, John, on the importance, um, from our perspective on discretion and how that really benefits the clients. And one of the things that, again, as we have made the, the move toward discretion over the years, one of the things that I remember hearing from clients— I don't know if you guys have too— was, I just always assumed you guys could just do whatever you thought was best. And so I think a lot of times that ability is presumed by the client, like, oh yeah, you guys just do whatever you need to do, when in reality the legal and the regulatory environment that we operate in won't let us do that. And so without specific kind of forms and permissions, we can't do that. And to your point, John, I know you guys work with a select group of families, so it's not even like you deal with 1,000 families. You guys have a really curated client list, and even then it is incredibly difficult to be able to not only call, because we, we can't just call and leave a message, we actually have to speak to somebody and get permission. And so again, I do think what I found in my practice is that is incredibly helpful and, uh, You know, it makes it less administratively burdensome for us, but it also really in a lot of cases gives clients what they thought they already had. So Chuck, one of the things you mentioned earlier, you talked a good bit about being a fiduciary. Talk to me a little bit more about that. What does that entail, especially kind of in the context of, you mentioned commission-based accounts.

So again, when you think about fiduciary, it means we are, we're prioritizing our client's interest above everything else. Um, while, you know, these fee-based accounts basically align more with the principle of fiduciary, it doesn't always make sense to use a fee-based account. Um, sometimes a fee-based account, depending on how we're using it, can get our clients a higher interest rate. Um, so we'll use the fee-based accounts, but sometimes, especially with new issue individual bonds, and we probably did $30, $40 million of, of new issue bonds last year. It's— you can't buy them in fee-based. So if you don't have a commission account set up, you can't even purchase them for the client till they hit the secondary market. And that's even if they're on the secondary market. So that allows us to do the right thing for the client, choose the right product for the client. Um, and sometimes it's, it's not always about cost, but we do look at cost of each and every investment that we're putting our clients in.

You know, a client which I had just come in just recently, and they had many other holdings with another firm where they were— they're being charged for a couple of different stocks that they had for 20 or 30 or 40 years. And they had just significant gains in them, of which we would probably never sell. So we were able to park those into a commission account and hold on to those and still manage the overall portfolio when we're running our reporting, and we're able to utilize those to, to have them all put together. So we're managing again objectively, looking at the overall portfolio together. But primarily the commission accounts have really been used for the new issue bonds, which we've gotten— Raymond James has been fantastic with that. They just had some again this week which, which got close to 6% again. They were above 6% there for a while, and. And so we watch that quite regularly and we're able to use those in the commission accounts to get higher rates for the client because then again, if there's a— you're earning 6% when we call on that, you're getting 6% because the bondholder is paying us and there's no fee attached to it. Whereas if we're buying it in a regular fee-based account, you're getting the coupon, but then you're also having to pay the fee. And again, we just look at it quickly and if it's better to buy it in the commission account, then we buy it in the commission account. And a lot of times it might be. So we utilize it mainly for that. We've also used it for some of the different annuities that we've used, where we've used and done some annuities where it made sense for clients that were looking for guarantees that we couldn't offer on regular investments longer term. We've done some of that with the annuities.

Yeah, well, thanks for clarifying that, guys. I really appreciate that. Let's transition into some Action items. What are some of the key steps that listeners could take regarding their retirement accounts, IRAs, 401s, that kind of thing?

Well, each and every year the IRS, um, updates these accounts. So just this past year for 2024, you're seeing increases of, you know, $500. So from $7,500 to now $8,000 for clients over 50 on IRA contributions to from $6,500 to $7,000 for clients under 50 that now can contribute that max amount to their, their Roth IRAs or traditional IRAs. And also their 401s went up. So if you're not working with your advisors, you really need, and you possibly can, you really need to increase that amount from, you know, if it was $7,500 to $8,000 per person, if you're able to do that. And so that's something we actively do throughout our client book is we're calling families and saying, hey, here's the dollar amount, here's how much we're putting in monthly, here's the new increase. Do you want to increase it to this amount? So that—

I think especially if you're doing a monthly contribution, um, sometimes that could get overlooked, um, that, that it got increased, you know, over the last year, 2 years, 3 years by, by quite a bit. Um, and then the beautiful thing about the 401s, um, is most 401s now are allowing you to do Roth contributions. In the 401. And so you might only be able to do, you know, $8,000 into a Roth or $7,000 into a Roth, or you might make too much money to contribute to a Roth. Not in your 401. You're able to do up to $30,000 into your Roth now with your catch-up and $20,000 if you're under 50 in a Roth account. You can't do that in a regular account. Or if you make too much money, it's the only place that you can put money away tax-free. So that, that's been one thing that we've, we've, we've done a good bit of just educating people on along the way.

I think one of the things I'm actually most excited about for this year from a tax law change was the IRS now changed 529s. You know, one of our biggest objections was, well, what if my child never uses it for higher education or primary education? They've changed that to now you can basically when the child gets older, switch that or a certain portion of that to a Roth IRA so that child can now use that money for retirement. So now it grows tax-free for their entire life. And then when they're out of school, they start basically each and every year moving a little bit over to a Roth IRA. So that's really exciting. So if you think about when, if you're, you know, start a 529 like we did with Gabby, as soon as she was born, we started contributing.. And now if she doesn't use the money, we can take some of that money each and every year and convert that to a Roth to help her get started on retirement.

So we definitely are relooking at and re-talking to our clients about contributing to 529s, of which you can, you can also utilize that for, for private school, for private education, for secondary education. You could use it for rent. You could use it for, you know, if it's used for, for schooling. So we've used a lot. I'm yet to hear somebody get upset that they put too much money in their 529 plan or their Roth, but I have heard plenty of people complain about having too much money in their IRAs when they turn and have to start taking their RMDs and it's pushing them in a higher tax bracket. So it just gives you more tax flexibility, I would say, as you get older and another bucket that you can draw from. So as much of the taxes that you can tolerate today, You know, paying the taxes on the bush instead of the tree would be an analogy that I would use. You know, you're paying the taxes now on a much smaller amount than it might be later where it doubles, triples, quadruples if you've got, you know, time. Or if that's money that you're gonna pass, you know, you could be more aggressive in that account because you might not be touching it for 10 years. And there's never been a 10-year rolling average where the S&P 500 going back to 1926 has been down. So you have 100% 100% probability of success, um, if that's going to be the last place you go to touch it.

Well, and I, I think you, you hit on it, Chuck, for folks that start early. You know, you, you talked about doing that for Gabby, and what I have seen is that folks who start early, the benefit of that compounding is staggering. And I know, John, you and I have talked about you using, um, the benefit of compounding even for young professionals and the ability to go from, you know, an early professional kind of to retirement and just the astounding amount of money that young people can end up with. And again, this— the 529 plan works the same way. If you start with a little baby and you let it compound and you systematically invest over 18 years. I would tell people, guys, just to make sure that they talk to you all because these rules change a lot. And so to make sure that they're having this conversation with their advisor. If you're 50, you kind of go through that transition, right, where all of a sudden now you can put more money into your, into your IRA and your 401 above and beyond the minor adjustments they make each year and going to be a lot going on, Chip, with that 529 rule and how much people can move. And there are lots of specifics I know that folks can get with you on. So highly encourage— again, I don't know if North Carolina has a direct option like South Carolina. They don't. But, but don't, don't just run out there and change around your 529 plan without talking to these guys and fully understanding.

You guys even get a state tax deduction in South Carolina, right?

We do. Yeah, we do. Yeah. So guys, that, uh, that kind of brings us to the end for today. Chuck, anything you want to share in closing?

Uh, well, I hope everyone had a wonderful Easter. Um, hang in there with the pollen count. I saw the other day in Raleigh the pollen count hit like 5,400, which broke record of the prior year of about 3,200. So pollen's up almost 100% this year. So take that allergy medicine.

Yeah, I would say thank you for listening to us today, Chip. Thank you for taking time off your spring break. If you haven't taken spring break, enjoy it. And we greatly appreciate all that, your trust in us at Signature Wealth Strategies for letting us help you with your finances and anything we can do going forward. You know, we're here to schedule a meeting or appointment. Just call the office and we'd love to sit back down with you and see you as soon as possible.

Well, to all our listeners, uh, thanks for tuning in. We hope that you'll, uh, subscribe so that you can get more valuable insights from John and Chuck and the other folks at Signature Wealth Strategies. Until next time, take care and stay financially savvy.

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