May 2025
A Mid Year Review
I hope Spring finds everybody doing well!
I have spoken to many of you recently as I transitioned my broker dealer affiliation from LPL to Cetera Advisors.
I cannot tell you how much I appreciate your patience and understanding in this transition. It was done more for me than for you- compliance, reporting, etc is better with Cetera, but I am also hearing the Client Portal and monthly statements are a vast improvement with Cetera which benefits the client experience. It’s all good.
Of course in this process nobody’s investments changed. Clients brought over their existing assets in kind and are in the same place they were before except with a different broker dealer.
On to the mid year investment review.
It’s been a highly volatile 5 months in stocks and bonds. Stocks went higher early in the year, then had a 15-20% pull back and are now back to up on the year. Tariffs on/tariffs off, policy threats and promises have traders having no idea what is coming and what is real or not. And markets surely reflected that.
As for interest rates, there have been no cuts from Powell in 2025 and the long end of the treasury curve is approaching 5%, a retest of the peak of rates from the last few years. The last several months of economic data do not appear to be signaling a current or impending recession, but the business owners we talk to say business is not good. Hiring has slowed, layoffs are no longer rare and consumer demand seems to be softening. Honestly, it’s very hard to tell what is actually happening.
So we continue as we usually do. We invest for high income with relative safety of principal over the longer term. That strategy is much easier to implement now than the last 5,10 or 15 years. Current distribution yields are well above the average yields of the last 10-15 years.
In many broadly diversified long term retirement accounts, we are seeing higher yields. This is for accounts that do not need any current distributions for at least 10 years and can ride out any volatility and reinvest all dividends. We view this as a fairly abnormal set up coming off the last 15 years of near zero interest rates. For those of us who have worked and saved over the course of our careers, we are finally able to potentially earn higher returns in conservative investments. And it feels really good.
At current yields, we can build real wealth, compound returns and build substantially higher income streams into retirement. Now THAT feels really good.
Bonds have vastly underperformed stocks over the last 10 years, but at a starting point of interest rates where they are now and stock valuations where they are now (very high statistical valuations based on p/e multiples, price to book, etc), we see bonds representing a rare setup for strong positive returns for many years into the future.
We will see what surprises the back half of the year will bring us. Hopefully, the surprises will be good.
Best wishes to all for a great summer!
Chris