WE ARE HERE FOR YOU

The Platt Wealth Management team is here for you to discuss any changes to your financial situation or investment objectives. We are always available to assist you with any financial matters of concern to you and look forward to continuing to serve as your partner along your financial journey.

Warmest regards,
Platt Wealth Management

2021 AT A GLANCE

Entering 2021, investors faced a backdrop of uncertainty, and there were many reasons to be pessimistic about the markets. In modern history, restoring a world economy from an abrupt halt was unprecedented, and COVID-19 continued to impact business activity. Despite that, markets demonstrated strong performance, the unemployment rate fell to 3.9% in December, and S&P earnings grew by 34.5%. More than any other, the past year demonstrated the importance of staying disciplined despite all the “noise.”

2022: STRONG BUT SLOWING GROWTH

Economic activity has surpassed its pre-pandemic levels and consumer financials, in aggregate, appear healthy. Vanguard’s Economic and Market Outlook for 2022 anticipates GDP growth of 4%. However, some factors pose risks to the strong recovery and normalization of the economy. Bottlenecks in the supply chain and labor and materials shortages have pushed prices higher, and there is uncertainty around when these issues will subside. Overall, supply and demand imbalances continue to persist.

The U.S. labor force is unlikely to return to pre-COVID levels as retirements and unanticipated retirements totaled two million as of June 2021.

MONETARY POLICY AND THE FEDERAL RESERVE

The Fed has remained extremely accommodative in its stance towards the economy, despite the strength of the recovery, inflation pressures, and low unemployment rates. However, recent statements from Chairman Powel indicated that the era of “easy policy” may be coming to an end as unemployment levels tick lower, and the focus shifts to combatting inflation. The Fed’s extraordinary bond purchases are expected to end late Q1 or sometime in Q2. Additionally, it is anticipated that there will be as many as three rate hikes in 2022.

Our Contact Information

3838 Camino del Rio North
Suite 365
San Diego, CA 92108
619.255.9554

info@plattwm.com

https://plattwealthmanagement.com/

Warmest regards,
Platt Wealth Management

EYES TURN TO WASHINGTON

Markets have turned their eyes to Washington as Congress debates raising the debt ceiling before the government runs out of money. If the government runs out of cash, it could miss Social Security payments, as well as federal employee, veteran, and military paychecks. Goldman Sachs has estimated that if the ceiling is not raised, the Treasury may need to halt more than 40% of payments. If the government defaults on their obligations, the repercussions could leave markets in a daze of uncertainty moving forward.

Congress must reach a deal to raise the debt ceiling by mid-October. Raising the debt ceiling does not authorize new government spending, but rather, allows the Treasury to issue new debt to cover spending that has already occurred. Since World War I the debt ceiling has been modified or raised 98 times, as reported by the Congressional Research Service. It now appears that a possible short-term agreement in principle has been reached by Congress, but it only pushes out a final resolution until December.

THE FED

On September 22nd the Federal Open Market Committee (FOMC) voted to maintain the federal funds rate at a range of 0.00% – 0.25%. They also reaffirmed their commitment to purchase $120B in assets per month.

The FOMC is now evenly split in regards to a rate hike in 2022. For 2023, they are projecting three rate hikes with another three rate hikes in 2024. In regards to asset purchases, Chairman Powell’s comments indicated that a tapering will occur in the near future, but the timing has yet to be determined. During the global pandemic, the Fed took an extremely accommodative stance by lowering interest rates to well below historic norms, while also committing to billions of dollars in asset purchases.

Our Contact Information

3838 Camino del Rio North
Suite 365
San Diego, CA 92108
619.255.9554

info@plattwm.com

https://plattwealthmanagement.com/

The comments and projections made by the Fed indicate confidence in the economy going forward. They believe that the economy has made significant progress from the effects of the pandemic and expect that progress to continue into 2022. As the economy regains its strength, however, the Fed would like to maintain flexibility in their response to an ever-changing economic environment.

DISCIPLINED OUTLOOK THROUGH THE NOISE

There have always been many reasons to be optimistic or pessimistic about the markets. In this age of information and news media, it seems as if the sky is falling every few days. The truth is no one can predict the markets, and you should stray away from anyone who thinks they can. What we do know is that markets have persisted through events such as The Great Depression, two world wars, political uncertainty, double-digit inflation, international conflicts and more. As millions of people put their collective efforts into improving their respective industries, the overall economy and component companies steadily increase in value. This can be easily overlooked during times of short-term market swings.

We are here for you to discuss any changes to your financial life. Our goal is to assist you in constructing a portfolio with an asset allocation that you are comfortable with during good times and bad. We look forward to connecting with you and continuing to be your partner along your financial journey.

Warmest regards,
Platt Wealth Management

INTEREST RATES

In the bond markets, rates on longer-term securities jumped from historically low rates to simply low rates. Last year at the end of the first quarter the 10-year Treasury yield was 0.70% and the 30-year rate was 1.35%. They finished the year higher at 0.93% for the 10-year and 1.66% for the 30-year. This past quarter they moved considerably higher with the 10-year at 1.74% and the 30-year Treasury at 2.41%. These are sizable changes from when the economy was suffering from a rapid slowdown in business activity.

Concerns from investors through the quarter were not due to a 2.41% yield on the 30-year Treasury. Instead, the problem stems from the speed at which the treasury yields have increased. Increasing bond yields tend to have a negative effect on growth stocks, while value tends to outperform in these environments. Rising rates lead to lower prices on fixed-income securities. This will be a concern going forward. The Federal Reserve continues to support “keeping rates lower for longer” during the economic recovery.
Graph by JP Morgan

VALUE VERSUS GROWTH

Value versus growth investing has been and always will be a topic of debate. However, over the last decade, growth has outperformed value with large-cap growth, mid-cap growth, and small-cap growth outperforming their value counterparts.
While the performance of growth stocks has been undeniable, there comes the point where the pendulum begins to swing in the other direction. Through the 1st quarter of 2021, we saw a rise in interest rates and a cooling off of big-name growth stocks. For the quarter, large-cap value, mid-cap value, and small-cap value significantly outperformed their growth counterparts—a big shift from the past 10-years. As the economy heals, we could see sustainable momentum in the value investing strategy as investors seek out companies positioned to capitalize on an economic re-opening.

Our Contact Information

3838 Camino del Rio North
Suite 365
San Diego, CA 92108
619.255.9554

info@plattwm.com

https://plattwealthmanagement.com/

COVID-19 AND VACCINATIONS

Cases and fatalities from the Coronavirus have decreased rapidly over the past few months. This has been due to an effective roll-out of vaccinations and advancements in therapeutics. For example, at the beginning of the year, the 7-day average for new cases in the United States was roughly 250,000. But by March 31st, 2021, the 7-day average was about 64,400 new cases.

On the vaccine front, per the CDC, approximately 110,000,000 Americans have received at least one dose of the vaccine, making up roughly 33% of the population (as of April 7th, 2021). While 64,400,000 million Americans are fully vaccinated, approximately 19% of the population (as of April 7th, 2021). While there is still much work to be done, we may be beginning to see the light at the end of the tunnel.
Graph JP Morgan

YOUR PORTFOLIO AND YOUR GOALS

We look forward to meeting with you and taking the time to make sure you’re on track to achieve your goals. It’s always a good idea to revisit your asset allocation to make sure you are invested in a portfolio that is right for you. The proper asset allocation enables you to stay the course when challenging market environments occur. We also want to know if anything has changed recently that could impact your financial future. Platt Wealth Management is here to serve as your financial resource. Please reach out to us with any questions or concerns.

Warmest regards,
Platt Wealth Management

ECONOMIC RECOVERY

Six months ago we posed the question, “What shape will the economic recovery take? Will it be an initial such as U, V, or W? Or a symbol such as the Nike swoosh?” It is now apparent that we missed a letter, as the recovery has taken on the shape of a K. Sectors of the economy have moved quite differently from one another. Online retail was up 69% in 2020, and information technology was up 44%, with home improvement in 3rd place, up 28%. The losers were energy, airlines, retail REITS and hotels, resorts & cruise lines, down 34%, 31%, 28%, and 26%, respectively.

Cloud computing, e-commerce, video streaming, digital payment processors and home improvement stores benefited from the COVID pandemic. Restaurants, hotels, airlines, retailers and small businesses have been decimated. Yet, there is pent-up demand for many of these industries.

THE FLIGHT TO NOWHERE

On October 10, 2020, a Qantas Airlines flight took off from Sydney, Australia for a seven-hour flight to Sydney, Australia. That’s not a misprint. The non-stop flight took off from Sydney and arrived seven hours later in Sydney. What is even more remarkable is that the flight sold out in 10 minutes. People are yearning to travel once again and will do so as it becomes safer. The recovery will not be as fast as airlines, hotels, cruise ships, restaurants, or theaters would like, but it will happen.

Our Contact Information

3838 Camino del Rio North
Suite 365
San Diego, CA 92108
619.255.9554

info@plattwm.com

https://plattwealthmanagement.com/

THE DOLLAR

The dollar fell in 2020 to multi-year lows due to historic low-interest rates, increasing government debt, and a bleak economic outlook. A declining dollar makes international markets and U.S. companies with a strong global presence more attractive. A weaker dollar means increased earnings to U.S. multi-national firms when the global economy rebounds.

MARKETS

The bull market that made its debut in March of 2009 ended in March of 2020. The S&P 500 index recorded its quickest fall from grace with a decline of 34% in one month. A gain of 68% promptly followed by the end of the year, resulting in a return of 18.4% for the index in 2020. As measured by the MSCI All Country World ex-U.S. index, international equities performed slightly worse with a decline of 39% and a rebound of 63%, producing 2020 returns of just over 3%.

2021 OUTLOOK

GDP GROWTH

The International Money Fund (IMF) estimates global GDP will rise by 5.2% in 2021. Emerging markets GDP growth is projected at 6%, with Eurozone at 5.2%, and the United States at 3.1%. These projections bode well for diversified portfolios with international exposure. Vanguard has similar projections for the Eurozone and emerging markets, although slightly greater estimates of 5% for the U.S. They anticipate, however, superior returns from international equities because of their higher dividend yield and lower valuations.

COVID AND VACCINES

Growth estimates are based on the successful rollout of vaccines. Unfortunately, we already see signs that this will take longer than hoped for. It appears infection immunity will be more likely in Q3 or Q4 of 2021.

2020 reminded us that, as we have always said, you cannot time the market. At the end of Q1 most major Wall Street firms were lowering their expectations for the markets. Goldman Sachs slashed their year-end target for the S&P 500 to 3,000 in March. They later raised it to 3,600 in August, then increased it again to 3,700 in November. It finished the year at 3,756.

We have always stressed that the right portfolio asset allocation is the one that you will not abandon during difficult times, and these were certainly difficult times. Headlines foresaw the end of the world. But as many of you have heard me say, “Statistically speaking, the end of the world does not happen that often.”

Knowing that you are still on track to achieve your goals can give you peace of mind during this tumultuous period. If you wish to discuss your portfolio or any other financial matters, please contact us for a phone call or virtual meeting.

Warmest regards,
Platt Wealth Management

MOST COMMONLY ASKED QUESTION LAST QUARTER

What should I do?

We’ve all heard the phrase, “Don’t just stand there. Do something!” John Bogle, founder of Vanguard, modified this for long-term investors to say, “Don’t do something. Just stand there!” In today’s investment environment, both expressions are true.

Most of us are at home following quarantine guidance to slow the spread of this virus and keep healthy. We have learned to use video technology to communicate for work and pleasure. This has given us the opportunity to spend more time with loved ones, catch up on binge watching or reading, or share the occasional video or humorous email. On the negative side, it has allowed us to follow news and financial outlets more often and more intently, which is probably not good for our mental health. We are bombarded with stories about the markets, which can make us think that we must do something. This leads to emotional decisions, and emotional decisions are usually wrong decisions. If you have a well-planned long-term strategy and understand the risks associated with your portfolio, now is not the time to abandon that plan. Now is the time to, “Don’t do something. Just stand there!”

What are we doing? The declines in the markets give us two opportunities which can produce better after-tax portfolio performance.

Rebalancing

We have been rebalancing portfolios to the range specified in your Investment Policy Statement (IPS). Under this disciplined approach, we buy assets that have gone down in value and sell those that have gone up in value. This will enable your portfolio to fully participate in the eventual rebound in the markets.

Tax Loss Harvesting

We have also been harvesting tax losses in taxable accounts. Tax loss harvesting is selling investments which have declined in value and “harvesting” or realizing the loss for tax purposes. The position is then replaced with a similar one so your overall asset allocation is maintained. The losses have value since they can be used to offset capital gains and up to $3,000 of ordinary income. Losses can also be carried forward to offset future capital gains.

It’s Not Timing the Market That Works in the Long Run – It’s Your time in the Market

As market volatility increases, it can be tempting to ‘get out of the market until all of this is over.’ You may avoid some down days, but you also miss the up days. The chart below shows the effect of missing the best days of the market.

During the period shown, the S&P 500 index returned 5.10% annualized. If you missed the best 10 days (out of about 2,500 trading days), the annual return fell to 1.36%. If you missed the 20 best days, your returns were negative! Note that during this period, 7 of the 10 best days occurred within 2 weeks of the 10 worst days.

Our Contact Information

3838 Camino del Rio North
Suite 365
San Diego, CA 92108
619.255.9554

info@plattwm.com

https://plattwealthmanagement.com/

We are here for you.

If you wish to discuss your portfolio or other financial matters, please contact us. We can also discuss tax and planning opportunities like Roth conversions and refinancing debt that may be attractive now. Knowing that you are still on track to reach your goals can give you peace of mind during this time.

Be smart, stay safe.

Warmest regards,

Platt Wealth Management