Year’s end is neither an end nor a beginning but a going on, with all the wisdom that experience can instill in us. – Hal Borland
As we close out an eventful and rewarding 2024, Mike Brady, founder of Generosity Wealth Management, shares his insights into the past year’s financial trends and the fundamentals that continue to guide successful investment strategies. From market highs to economic shifts, Mike offers a thoughtful analysis of the forces shaping our financial landscape and provides a forward-looking perspective on what 2025 may bring. Whether you’re focused on long-term goals or navigating short-term challenges, this year-end review is packed with valuable insights for investors at every stage of their journey.
Transcript
Mike Brady with Generosity Wealth Management, a comprehensive, full-service financial services firm headquartered in Boulder, Colorado although we have offices in Fort Collins as well and clients throughout the whole United States. I’m coming to you right now from Boulder.
This is the yearend video. It’s been a wonderful 2024. I’m recording this video right before Christmas and I’m sitting here thinking to myself I’d like to get the video done so what exciting thing could happen between now and the end of the year. Of course, the market drops 1,000 points in one day, but the year is not just one day. It’s 365 days, it’s many weeks and from an investment point of view it’s many years strung together.
This really boils down to some of the fundamentals that I repeat over and over again which is you’ve got to know what your duration is and what your time horizon is for your money. If it’s long that’s completely different than if you need money next week, next month or even next year. That is one of the most important and deciding factors in your investment decisions as you reach your financial goals.
I always like to think of this as what are those fundamentals. We get into the weeds sometimes and I’m going to get into them here as part of my review and a little bit of hey, what are the variables that we’re going to watch going forward. I’m going to come back time and time again throughout this video about what are the fundamentals which is to be invested.
The very first graph that I’ve got up there is by decile. The last 96 years of the S&P 500 which is an unmanaged stock market index. If you look at all those you’re going to see that there’s a skewness, a preference for positive returns. Actually, 73 percent of the returns are positive, whereas of course 28 percent are not positive so zero or down. That’s important because we had better ask ourselves hey, do I have my investments and always worried about the steps back? Do we take three steps forward and one step back? Or do I worry so much about that step back that I also give up the three steps forward? There’s only one percent of the time that it’s been more than 40 percent. As a matter of fact, there’s only six percent where it’s been really horrible and nobody likes those.
Then when we look at all the others it’s painful. That’s why I get back to one of the fundamentals. If you need the money in a short term – a year, two or three – absolutely you should think about the risk level and whether or not that’s something that you would be willing to take.
We have a skewness towards the positive in the markets and in 2024 it was very positive across the board whether it is the unmanaged stock market indexes, domestic or international or the bond index. So, just a wonderful year.
The next chart I want to point out is that’s what we’re looking at from an investment point of view. You’re going to see that last little bit there is 2024. We’ve had a wonderful runup even with you consider 2020. We’ve had a wonderful runup and we’ve got a P/E ratio of about 22 right now. Many times people say well, with a P/E ratio of 22 that means that the markets might come down. I’m going to show this next graph her and it is above average the 22. However, there’s two ways that it can revert to the mean. One is that the prices come down or the earnings go up. I’m going to make a proclamation here today that I believe that the earnings are going to go up to make that number go down and that the price is going down.
I think there are some fundamental shifts going on from an economic point of view, an economic point of view, that we haven’t seen in 30 years. It is all of the advances in technology, especially as it relates to artificial intelligence, the large language models and how that’s going to seep into everything that our economy is doing.
I remember when I was in college in the late 1980s and I used to write out in long form my papers. We also used to have to add and subtract on a piece of paper. Now we have spreadsheets, now we have Microsoft Word or Pages in the Apple world, and how efficient that has made so many businesses that have just propelled the earnings ratio for companies. I think we’re going to have the same revolution going forward in that and we’re just scratching the surface. It’s going to be my belief and what I’m going to say to you is the price going to go down or the earn is going to go up to meet those prices and to justify those prices. I believe it’s going to be the latter.
The Magnificent Seven which are some of the biggest technology firms have done very well. I’m highlighting it there right now which are the profit margins and I believe they are going to continue to stay very nice, if not go higher. This bodes well for those of us that have that long term time horizon.
I want to take a break here for a second. If you say to yourself hey, I don’t have a long term time horizon. My answer would be you probably do. Even if you are 65 years old and you’re about to retire you hopefully have many decades statistically to live. You’ve got to remember that there’s many five and ten year time horizons until you and your significant other, if you have one, might pass on.
If you say I don’t want to take any risk. Even though the probability is historically that it’s going to be positive and not negative and I don’t want to take that risk. Give me a call because there are some investment vehicles out there, some products I suppose, that do have floors so we can find something that might work for you. I don’t read minds so if your mind has changed, your mindscape, your belief, your risk tolerance has decreased or changed in some fashion you’ve got to let me know so that we can adjust accordingly.
Inflation has gone down, which is wonderful. It has gone down and I believe it’s probably going to continue to go down but that’s what the Fed is working on right now. They have just made a proclamation that they’re going to maybe slow down in 2025 and the rate decreases. We’ll see how it plays out. It’s hard to predict out a whole year but, of course, we don’t change our philosophy on what the Fed says in one day for one year. I don’t believe we’re going to see a zero interest rate environment like we have right after the great recession.
As you can see there that I’ve circled and highlighted it has continued to go down over the last couple of years and is expected to continue to go down and I would think that as well. That’s good especially for mortgage rates for those of you who want to buy and sell a house, real estate, people who have existing bonds that’s a good thing as interest rates go down and prices have a tendency to go up for existing bonds so that’s a good thing, especially when we have a portfolio that is stocks and bonds put together.
You’re going to see here especially on that righthand side that bonds had a tough year a couple of years ago – a tough couple of years. The last couple of years have been positive of the unmanaged aggregate of the Bloomberg U.S. aggregate for the bond indexes, but it’s still been pretty lame this year especially compared to what the equity markets have done. It still makes sense to mesh them together because as interest rates continue to go down it’s my belief that the bonds will go up. In the right portfolio it still does make sense. Let’s not get too negative about them going forward.
I think this is one of the key and fundamental charts that we always have to keep in mind. On the one year on the lefthand side is the range going back 50-60 years to 1950 – so I guess that’s over 73 years. The green is 100 percent U.S. unmanaged stock market index. The bond is the middle one, that blue one. The gray is 50/50 unmanaged stock market index and unmanaged bond index shoved together. What’s important is when you look at the 5, 10 and 20 year how the highs go down and the lows come up. We’ve had a 50/50 blended portfolio. There actually has never been a five year time horizon going back 73 years where you haven’t at least broken even and even made one percent. So, that’s what we’ve got to keep in mind. Has there been one year where a blended portfolio has lost money? Absolutely. We can see that by those bars on the lefthand side. If we blend them together we start to have at least historically something that has the worst has not been that bad so that’s what we’ve got to keep in mind.
That being said, 2024 was a wonderful year across the board which follows up to 2023 which was a great year even though 2022 was horrible. We’ve got now that horrible year in 2022, but 2023 and 2024 have been wonderful. In 2025 we have a new administration but let’s not forget the president is not all powerful. I think getting back that the technology changes that we’re going to see filter through from the technology firms, through all of manufacturing and service businesses and changing our daily lives is going to be a motivating factor in 2025, 2026 and going forward as well, but we will see. We don’t change our portfolio for one year. We don’t change because of a new administration. We don’t let our politics dictate our investment philosophy, but it is good to know what the long-term trend might be and I believe the technology advances that we’re seeing is going to be one of the most important variables in the foreseeable future.
Michael Brady, Generosity Wealth Management, 303-747-6455. I hope you have a wonderful new year and have had it by the time you get this, and that we have a wonderful 2025. Take care.