First, I want to say thank you for the support and trust you have placed in myself and my team not only this past year, but throughout our journey as we celebrate five years being in business as of January 2nd. This annual letter is designed to report to you various happenings both with the firm itself and our outlook and approach moving forward. I believe it is important that clients are not just seen as customers, but rather as stakeholders in what we do and how it is we do it. My hope is that this direct communication with you serves as a window into our mindset and approach in serving you both now and in the future.
2022: A Year of Challenges
Starting at the end of 2021 and throughout 2022, a myriad of headwinds and pressures ranging from domestic unrest to global geopolitical and economic turmoil made for a broadly unproductive market for the year. What has been interesting even as 2023 has begun is that many of the fears being regurgitated by the media have not in fact come to pass; I will go into this in considerably more detail in my section on reflections regarding the market.
Beyond the markets and the happenings of the world, 2022 was a year of challenges for me personally and professionally as well. On a very positive note, I completed my thesis earlier in the year, which has since been republished widely to the financial planning community, and has served as a tremendous guide as many of the dynamics examined in that voluminous work came to pass late this year with the passing of SECURE Act 2.0 (I am happy to send you a copy of my findings – please email me if you would like this). I completed my Master of Science in Personal Financial Planning from the College for Financial Planning, earning a straight 4.0 for the program, and the firm has continued to grow rapidly in spite of the aforementioned headwinds faced this year, enough so to merit hiring our second full-time financial planner.
However, on a personal level 2022 was very tough. On October 11th, 2022, my mother Debra Briggs passed away at the age of 68. My mother was an incredibly selfless and wonderful person, volunteering and working for decades in the elementary school my brother and I went to in Wacousta, Michigan. From creating learning activities and games to cheering us on at everything we did growing up, my mom was an inspiration, someone I deeply loved and admired and never, ever wanted to disappoint. She always looked out for others ahead of herself. She was respected and admired by her peers and her friends, a quiet leadership in that you could always count on my mom, and you could always count on her to do right by you. I miss her fiercely, as do my younger brother and my father – her husband of 49 years, as well as her friends and the community that she loved and that loved her back.
What I can say is that I am certainly my mother’s son, and that I will do my level best to honor her by supporting you, our clients, in any way I possibly can. That is my pledge to you as we venture into 2023. We have an amazing and expanded team, with more tools, articles, and resources being developed to help you better understand every aspect of your money and build stronger finances for the long run. I am confident in our approach, and I am appreciative of your support and loyalty to our team. It has been an amazing journey thus far, and I am looking forward to many more years of serving you, be it for financial planning, investment management, or tax preparation. I am happy and excited to share with you our happenings and what we are working on for this upcoming year.
We Hired Our Second Full-Time Team Member!
In October of this year we hired our second full-time team member, Krystal Landreth. Krystal is an Associate Planner for the firm, bringing several years of prior experience in the financial industry as a loan officer for Arizona Central Credit Union, as well as communications and marketing experience including a Master of Arts in Communication and Higher Education from Grand Canyon University. She has done a tremendous job studying tax laws, contributing to client and team meetings, and will be instrumental to our success both with tax preparation and financial planning this season as our client base continues to expand exponentially. I am very eager and excited to see her successes on our team in 2023. Welcome to the team Krystal!
Shout-out for Shawn!
Shawn Block has been our team now for two and a half years and as I write this letter, I know he is working diligently to write his Masters thesis and will be wrapping up that program later this year. I marvel at how much Shawn has developed in really such a short period of time, coming from an entirely unrelated industry to put in the hard hours of work, of study required to build expertise as a planner. It is a testament to the idea that it is far more preferable to hire someone with great work ethic and little experience than to hire someone with little work ethic but great experience. Cheer Shawn on as he pushes through the last leg of a two-year race!
Tax Season is Here Again!
It is that time of year again . . . TAX SEASON! We anticipate preparing and electronically filing well over 100 tax returns this year, more than quadruple what we did just three years ago when I first started offering this service. While complicated tax situations are an obvious reason to hire professional preparers, the biggest reason many people have us prepare their taxes is to save themselves the stress and anxiety and spend more time having fun instead. Our solution is comprehensive, including data archiving at no additional cost, and our fees are very competitive compared to major national brands. As our slogan goes: “Taxes done, stress gone!” Please let us know if our team can help you prepare and file your taxes this season.
Money is Personal and The Briggs Blog Continue to Deliver Value
If you have not heard our award-winning podcast “Money is Personal” or recently read up from “The Briggs Blog,” all I can say is, you should. We use these vehicles to provide additional depth of thoughts across a wide range of financial topics important to you. This includes changes such as how retirement accounts and taxes work as the laws change (like they did at the end of 2022, which we published and talked about over a year and a half before it happened), as well as ideas on how you can do more with what you already have, such as tax-efficient strategies for charitable giving. Email me to get on our monthly e-newsletter if you aren’t already receiving it, and follow us on Facebook, LinkedIn, and Instagram to stay up-to-date with our financial tips, tricks, and ideas.
The Transition from TD Ameritrade to Schwab
Around the Labor Day weekend this year, investment account clients will have their accounts transferred from TD Ameritrade to Charles Schwab. This is the result of Schwab acquiring TD Ameritrade back in November of 2019, followed by years of planning for this transition. The good news regarding this move is that you as clients do not have to do anything regarding the transition; you do not have to open new accounts, there are no new management contracts from us, and there will be no change or increase in cost regarding the management of your accounts. Simply put, we get to enjoy the ride as this transition unfolds.
That said, I do want to share some internal analysis with you regarding this move. Over the past couple of years, I have considered whether or not this move would ultimately be in our client’s best interests, versus our firm transitioning to another institution as our custodial vendor. With respect to the quality of client service and order execution, Schwab and TD Ameritrade respectively lead in those areas in the custodial space – and it isn’t particularly close, even against Fidelity and Vanguard. The team working on this merger has been thoughtful and deliberate, taking years to plan out what aspects of each institution they want to maintain, which I appreciate. I do believe their solution will end up being a “best of both worlds” outcome, granted with any platform change I do expect some amount of hiccups.
Examining other custodians, one key area that Charles Schwab has been less competitive is with respect to money market and cash balances in accounts. Other, typically much smaller institutions, tend to offer higher rates closer to what a high-yield savings account might yield for balances sitting in a cash position. My response to this is that our job is to manage investments, not charging management fees to be a glorified bank account. To that end, we have advised clients in the past that if they are wanting/needing to hold cash, to consider doing so at a banking or credit union institution. You will likely earn higher rates of return on those cash positions, paying little if any fee at all to earn that return. I also advise to make certain those accounts are federally insured by FDIC/NCUA, which is separate from what insures investment accounts from institutional default (SIPC).
This all said, I believe that what Schwab will offer you with the best pricing in trading combined with award-winning client service is ultimately what is in your best interests. This is why we signed earlier this month the adoption agreement to transfer to Schwab later this year. Please let me know if you have any questions regarding this change in vendor.
Reflections and Considerations on the Market
2022 was a year that, on its surface, felt incredibly pressured from start to finish. From the war in Ukraine, historic levels of inflation globally, a very hasty increase in interest rates, the reconfiguration of the world’s energy consumption and sources, China being largely closed with its “zero-COVID” policy, unwinding of the supply chain, pressures on the housing market, talks of recession, midterm elections, and the continued threat of COVID-19, we were given many reasons to be worried about the state of the world. If you watched the news habitually, if you followed (doom scrolled) social media habitually, at every turn you likely saw reasons to be very concerned.
Yet for all the headlines mentioned above, I am actually rather optimistic about where things are positioned and the potential 2023 has in store. The United States from a macroeconomic perspective is in my opinion the strongest position in the world relative to its competition, with lower inflation than most other countries and stronger GDP growth – nearly double that of both the G7 and the European Union, and stronger still than the OECD area as a whole. Real personal income is up, employment is strong, consumer spending is up; the typical underpinnings of a recession have not reared their heads as of yet.
So, what do I make of this?
The setup going into 2023 feels very similar to what I observed, albeit at an accelerated pace, at the end of 2018 going into 2019. There were talks then of geopolitical concerns regarding global trade, interest rate hikes, inflation, growth slowing, market volatility, and the next year’s Presidential campaign heating up. Semiconductor companies were down well over 50% from three months’ prior, and a major slowdown was expected by virtually every expert. What happened? Most of those fears were never realized, the S&P grew nearly 29% that year with stocks posting “their best annual gain in 6 years” according to Fred Imbert (2019), markets reporter for CNBC. Semiconductors saw much better than expected demand, and by the end of the year fully recovered from that decline, growing strongly the following years as well.
With respect to interest rates, I do believe the Federal Reserve is quickly approaching a limit for how much they can tighten without causing major damage to the global economy. Our allies will not be as friendly if we continue down a path of aggressive tightening, thus forcing their hands into raising rates as a means of avoiding their respective currencies from devaluing. We saw that dynamic earlier this year. When the Federal Reserve first began increasing interest rates, the dollar soared relative to other currency values, putting enormous pressure on the global economy. This year, that dynamic could begin to reverse itself as other parts of the world raise interest rates while we hold position. Assuming that happens, this will lower the value of our currency slightly, which will improve the performance of our exports and act as a tailwind for improved corporate performance as opposed to the headwind that it was in 2022.
This past year, our flagship equity strategy was down 32.2%, which is basically in-line with the NASDAQ composite index down 33.9% this past year. What is interesting though is that in spite of this negative price performance, the businesses that makeup our equity portfolio actually grew their bottom line. Corporate profits from what we owned increased nearly 24% year-over- year. What this demonstrates is that during periods of uncertainty, everything tends to sell off as human behavior kicks in. However, high-quality companies with strong business fundamentals tend to recover more readily and, over the long run, outperform businesses that are not structured as well. Our focus on selecting companies with strong margins, that make real products and make real profits, with excellent leadership and little to no debt, continue to perform well as businesses even during these periods of uncertainty. My expectation is that when some of the aforementioned pressures begin to ease, new money or “dry powder” will likely gravitate towards higher quality companies first; this is what we already own and hold. I cannot tell you with any degree of confidence when exactly that may occur – my crystal ball is just as good as yours. What I can say is that I feel extraordinarily confident in what we are invested in, so it comes to the hardest part about investing – and it is not the research. It is having the patience to allow things to play out, even as the rest of the world skitters in every which direction. As Warren Buffett has said “You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ” but “If you aren’t willing to own shares for ten years, don’t even think about owning them for ten minutes.” The results this year are very short-term, yet the game we are playing is long-term, so our behavior must either reflect the game we are playing or we will likely be very disappointed in our result.
With respect to fixed income and bonds, we avoided some major losses by taking a much shorter-term perspective on bond durations than the broader market. Depending on strategy and mix, our bond strategy was down 7-10% this year, well ahead of both the Bloomberg U.S. Aggregate of -13% and the U.S. Long-Term Yield Index of -29.26%. I have and continue to maintain our position (that we have held since we opened) that short/ultra-short duration bonds are the best way to combat unexpectedly moving interest rates, but (and this is important) that if you are seeking long-term capital appreciation, growth stocks are still the best way to achieve that durable, long-term return, not the bond market, which even today is paying out less than half of what the S&P 500 index has delivered investors over long-term durations.
I am once again deeply thankful to have earned your business and your continued love, trust, and support even through a rather tumultuous period of time. For as challenging as this year has been, keep in mind that we as people and as a country are extraordinarily resilient. We have gone through multiple world wars, various social and political challenges, sicknesses, depressions and recessions and market crashes, and we have come back stronger time and time again through all these adversities. I hold significant optimism that as the number of headwinds begins to ease, as that pressure steadily decreases, that our future is bright. It is through a prudent, disciplined approach that we weather these times successfully, and I am confident that that is exactly what we will be doing in months and years to come.
Finally, I will just say that while meetings can and are scheduled for you to meet with us, our door is always open if you have any questions or want to discuss a topic or idea. I must confess that for all of our expertise, we are not mind readers, but we would love to help you in any way we can, so please do reach out if there is anything either myself or the team can do to better serve you. We take great pride personally and professionally in giving you our very best.
Blessings and friendship,
Chairperson and CEO
Briggs Financial Inc.
Imbert, F. (2019, December 31). Stocks post best annual gain in 6 years with the S&P 500 surging more than 28%. CNBC. Retrieved January 6, 2023, from https://www.cnbc.com/2019/12/31/dow-futures-last-trading-day-of-2019.html