Moore Financial Solutions Fourth Quarter 2022
Tyler Moore • January 13, 2023
Q4 of 2022 offered an increase in the S&P 500 of 7.08%, as investors’ portfolios regained a portion of the losses brought on by a down year (1). During this most recent quarter, the S&P 500 pushed higher, before seeing a retreat to the closing price of 3,839.50 (2). We remain optimistic that market sentiment shows the continued opportunity and belief that this market downturn will end, and investors will be back to making money in stocks. In the opinion of Moore Financial Solutions, the sharp movement upward from the quarter’s opening price of 3,585.62 to 4,080.11 (13.79% increase) in the first two months of Q4 show investors’ belief that we will get past this downturn, and eventually return to all time market highs (3). As a point of reference, the S&P 500 briefly touched 4,797.70 in January, which represents the highest level of the year (4). This high point in the market is 24.96% above the closing price of 2022 (5). The year ended with a -19.44% return for the S&P 500, before factoring in dividends (6). This resulted in the second down year in the last decade, after factoring in dividends (7). One decade ago, the S&P 500 opened the year for 2013 at 1,462.42 and has moved up 163% (plus paid an approximate 1.5% dividend each year) (8). We reference this decade of movement as a reminder that if you are willing to tolerate the ups and downs of the market, it has historically generated returns.
The Moore F.S. management philosophy remains the same; own a variety of diversified stocks touching on a variety of market capitalizations. For clients closer to their goals, or withdrawing from their portfolio, bonds become appropriate to ease the volatility of the portfolio. Focusing mainly on clients with long time horizons (funds invested for 10+ years), we do not believe bonds should be used. Many other firms that you see advertised include bonds in their portfolios, regardless of a long time horizon. We believe this is because they have a weaker relationship with their clients and feel the need to reduce volatility in a portfolio. By contrast, we aim to have a very strong relationship with our clients and educate them that stocks will move in both directions, and that they should plan to buy and hold for the long term. By eliminating bonds in these portfolios, we aim to buy and hold quality stocks which historically generate approximately double the return of bonds (9). Furthermore, in 2022 bonds did not offer the cushion that these large firms had hoped for. We believe this can be seen by examining the move of the iShares 20+ year treasury bond ETF (TLT), which moved from $148.19 per share to $99.56 per share in 2022, a reduction of 32.82% (10). Instead of using bonds that offer little upside potential, we aim to continue to use dividend paying stocks and value stocks, as opposed to purely growth stocks. In July, we moved $207,165.53 out of bonds as the Federal Reserve seemed determined to increase interest rates. Shortly after this move interest rates increased, and bonds decreased in price. These funds were later moved back into bonds to take advantage of the interest rate decrease on the horizon. As a reminder, bonds lose value as interest rates rise and gain value as interest rates decrease. At Moore F.S. we take pride in our money management style and continue to manage every account on an individual and personalized basis. We remain committed to always acting in your best interest while managing your money as an un-biased fiduciary.
A major headline of Q4 included Sam Bankman-Fried and his titanic fall from an estimated worth of $26.5 billion, to being one of the most wanted white collar criminals in history. You likely have some knowledge of SBF, but we would like to highlight this event and lightly touch on bitcoin as it relates to your portfolio, or rather we should say how it does not relate to your portfolio. SBF is known not just for his funny hairdo, but for being the founder of FTX. You may have first noticed FTX by watching Major League Baseball, as the umpires wore it on their uniforms as a method of advertising. The MLB didn’t forecast that they were advertising a firm that was diverting client money into a completely different hedge fund to help pay its debts and create investments to the tune of $10 billion. Furthermore, bitcoin’s price moved down 15.02% in Q4 and is down 74.33% from November 2021 highs (11). We reference the SBF story as it is major news within Q4, and we reference bitcoin prices as a reminder that there is no need to reinvent the wheel in finding alternatives to stock investments, in our opinion. In 2021 the Moore F.S. phone would ring a couple times a week with questions regarding investing in bitcoin, and how this could be done on our platform. We are proud to say that we have never put a penny of investor money into cryptocurrencies and have no intention to. You’re likely not surprised that we haven’t received many questions regarding cryptos recently. Lastly, we think it is worth stating that all Moore F.S. investor funds are held at TD Ameritrade, which we feel is the best in the business regarding custodian of assets.
A new year brings new challenges and new goals. We think 2023 will be a fruitful year for stocks if a few things can happen. Inflation data needs to show that Federal Reserve interest rate increases are having the desired effect in cooling the economy. As a reminder, an overheating economy creates a lack of price stability. We remain optimistic that the Federal Reserve will not overtighten financial conditions too quickly or too much. Earnings for corporations will need to avoid a dramatic decrease. Clearly, earnings may fall as a result of interest rate increases, as buyers electing to finance large purchases (homes, cars, etc.) can buy less units for the same monthly payment. For example, 30-year mortgage rates moved up approximately 3% from ~3.5% to ~6.5% throughout 2022 (12). This means a $250,000 home’s monthly payment moved up $457.56 from $1,122.61 to $1,580.17. This change erodes the buyer’s discretionary income for other items and will likely have an impact on their spending. To this point Moore F.S. aims to increase portfolio holdings of financials as their overall margins should improve. We have been cautious of increasing our weighting into financials because an inverted yield curve tends to not be favorable to the banking industry. An inverted yield curve means short term rates are higher than long term rates despite a long term loan being more impacted by many years of inflation. We encourage you not to overpay loans that have an interest rate of less than 5% as these funds could be better directed somewhere else, in our opinion. If you are actively overpaying loans of less than 5%, please reach out to us to discuss potentially more favorable alternatives. Keep in mind, if your mortgage payment is $1,000 per month, for example, after many years of inflation, that $1,000 per month may feel more like $750 per month one day. Additionally, by overpaying your loan you lose that liquidity, and if a financial emergency occurs you do not have that overpayment to draw back out, where you could access an investment account in an emergency. In our opinion, this is one of the few times where you can get a better rate and take a more conservative approach, conservative in terms of keeping your liquidity. It is worth stating that the avoidance of interest by overpaying is a sure thing in most cases, where the returns an investment could offer are generally not guaranteed, so this is worth taking into consideration.
I want to personally take this time to wish you and your family all the best in 2023. Every account I manage represents someone’s goals and freedom to make their life better. 2022 was equally as tough on me as it was for you as the investor. Although I try hard to educate you that these years will happen, it doesn’t make them much easier to endure. There are things you can do to take advantage of the recent downturn in the markets. If you still have a medium or long time horizon you can get money into the stock market while it offers a better entry price than it did for most of last year. If you are withdrawing it may be a great opportunity to challenge yourself to decrease the withdraw amount. The stock market is like electricity within your home, when used correctly, it enhances our everyday lives. But, if used improperly, it can harm us. In my opinion, for investors with the willingness to tolerate the volatility of stocks, there is no better way to create passive income and wealth. It is with great pride that I continue to be your fiduciary and I welcome all your questions and concerns, even if it does not directly relate to the accounts I manage. My main goal is to make your life better by being in it, and I thank you for your continued trust and letting me manage your goals as your independent fiduciary.
About thirteen years ago when I started my career as a Financial Services Professional, I was almost instantly astute to the number one factor that determines client success. Of course, this determination was solely my own opinion. I’ve never turned on CNBC and heard scientific data backing it and likely never will. You can nearly ignore researching passive management vs. active management, throw out a comparison of exchange traded funds vs. mutual funds, and forget all about whether a Roth IRA or Traditional IRA suits you best. I believe the number one determinate of success that a client must have is “Proper Expectations”. It is by no coincidence that I believe Moore Financial Solutions clients have extremely reasonable, and ultimately the proper, expectations regarding investing. Investing long term is no casino, rather a patient approach to creating current income and future earnings. Prior to gaining licensure to be on your side financially, I know people that panicked and sold their entire portfolio and moved to cash positions in the Great Recession of 2008-09. They told the story years later to me regarding the vast missed opportunity and harm in locking in the losses. Imagine an investor panicking in Q1 of 2009 and selling stocks below 700 on the S&P 500, an index that is about eight times higher today at 5,635 (1). The S&P 500 would see gains of over 75% in the eleven months to follow, peaking this client’s FOMO and desire to get back into the market, only to sharply drop 16% over the next two months (2). My advice to you, and the number one way I can help you with your investment success, continue not being like this example investor. But rather, stay rooted in your investment philosophy. Realistically, the stages of someone’s investment life are humorous. We typically have little money early on, and it is easy to overcome the emotional impact from the money movement (a 10% decline in a portfolio of $2,500 might equate to a couple days’ earnings). But the problem is, there aren’t ample funds in that portfolio to provide life-changing growth either. For example, last year’s approximately 25% increase in a hypothetical S&P 500 index would have added only $500 to that portfolio. You want to play in the big leagues? Think you can handle the emotional impact of stocks and bonds? Try having an account of $750,000 or $1,000,000. You might want to pick up a fun hobby known for reducing stress, because there are going to be times when your portfolio hits rough spots. But there is good news too. Mathematically, just a 5% return on one million dollars is a gain of $50,000, and the reward for taming the emotional torment is much greater. Sadly, Q1 2025 was a great month to lean on those stress-reducing hobbies because the S&P 500 moved 4.59% lower for the quarter (3). Additionally, the S&P 500 moved 8.66% lower from February 19th, 2025, to the end of Q1 (4). Though the 4.59% has some sting to it, moving down nearly 9% in 40 days undeniably tests the emotional resilience of an investor, and we understand this firsthand. We are excitedly moving forward with this quarterly review to discuss what moved markets, tariffs, and what opportunities may arise. Without question, Wall Street found it very difficult to plan around the Trump tariff shifts. On January 26th, 2025, President Donald Trump announced a 25% tariff on Columbian imports as President Gustavo Petro attempted to decline inbound Columbian migrants. Petro retaliated with a 25% tariff against United States made imports. Shortly after, Petro begrudgingly received the migrants, and the trade dispute 2 ended, providing our president a quick trade war win. Moore F.S. believes this quick victory would go on to fuel President Trump’s confidence using tariffs as weaponry. On February 1st, 2025, President Trump laid the foundation for a 10% China tariff and 25% tariffs on Canada and Mexico. Just two days later the president would signal a 30 day pause on each of our neighbor’s 25% tariff (5). These back-and-forth movements continued off and on for much of the first quarter, with many tariff strategies subjecting only specific industries, e.g. automakers or steel producers, creating not only volatility in the broad stock market but especially within specific industries caught up in the talks. President Trump has labeled April 2nd, 2025, as “liberation day” signaling a big event. Throughout this back-and-forth, Moore Financial Solutions has made every effort not to be on the “wrong side” of the trade and has remained well rooted within our equity portfolio, when appropriate. We view, as mentioned in previous quarterly reviews, the volatility within the stock market as the “cost” or “price” paid emotionally to be able to receive the effective returns stocks could offer. In greater detail, rather than Moore F.S. attempting to time markets or predict the president’s next move and potentially being wrong, we’ll ride the storm out. Although Moore F.S. does not predict a bear market (described as a move down of 20% in the stock market), we point to the resilience of the stock market, overcoming all 29 previous bear markets and having done so rather quickly, taking an average of only 289 days to recover from the drop (6). Though we can’t rely on past market performance to guarantee its future, we believe this reaffirms our approach to using the stock market for clients with a long enough time horizon and ability to pay the emotional “cost” of seeing a portfolio move lower. Moore F.S. has theorized in past quarterly reviews, with no data to back it up, algorithmic trading (computers buying stocks at a “floor” or low point which might give the market support), and a trend of increasingly younger portfolio managers who have only seen speedy recoveries and long bull market rides might reduce the average bear market duration.
It is with great pleasure to work as your trusted advisor for another year! We hope you and your family had a Merry Christmas and you’re headed into a Happy New Year. To the surprise of some other financial firms, the stock market created sizable gains in 2024 with the S&P 500 increasing 23.3%, ironically within 1% of the year prior’s 24.23%. Additionally, that same market index returned a modest 2.06% in the fourth quarter of 2024, with all figures mentioned not including dividends (1). With Q4 of 2024 hosting one of the biggest elections of our lives, at least as described by some, we plan to discuss how our money management strategy evolves. We proudly stayed true to our strategy and didn’t decrease our allocation to stocks, while many other firms were selling covered calls and reducing their allocation to stocks as they incorrectly predicted a downturn in the markets for 2024. Even if you were living under a rock, you were likely informed that Donald Trump is headed back to the White House. We reference this change with the understanding that the leadership of current President Joe Biden is quite contrasting to the leadership we’ve seen from Donald Trump in the past, and his campaign promises. The Federal Reserve seemed to have had to slightly adjust their projected pace of rate cuts with the understanding that Trump will be more favorable to the economy through deregulation, corporate tax cuts, and repatriation of jobs. These factors, along with the deportation initiatives, may reignite inflation in the short term. The Center for American Progress puts the undocumented immigrant population in the United States at around 11.3 million, with 7 million of them working (2). To make matters worse, many of these jobs are considered “difficult to fill” and/or “less desirable jobs”. We believe the Federal Reserve felt the need to signal plans to slow rate reductions, after reducing rates in 2024. In September, the median projection for the end of 2025 implied four more rate cuts next year, but the median projection from December’s meeting only projects two more cuts (3). Below is the Federal Reserve’s dot plot, which is a chart that visually represents each member of the Federal Reserve's policymaking committee's projection for where they expect the federal funds rate (the benchmark interest rate) to be over the next few years.
