Transcript: As you know, we have a Core Value, No. 4, which says that if a client calls us, we lost. And, of course, what we mean by that is we always want to be proactive. We want to communicate with you about any changes, anything that’s going on, that we know about before you think of calling us, so that you don’t have to call us. Because if you call us about that, then we lost.

So, Core Value No. 4 says that we need to be proactive and that’s what this video is about. This video is to inform you that we are in the process of moving approximately half of your bond market portfolio allocation to short-term cash equivalents. Now, as you know, we are trend watchers. And what that means is, you know, for example, with our 200-day moving average – what we do there is we watch the trend.  And, the 200-day moving average is, in fact, that. It is a reflection of the trend of the S&P 500 Index, the stock market. And when the trend is not our friend, we don’t want to play anymore with someone that’s not our friend anymore.

Now with the bond market, we don’t have the same sort of mathematical metrics that we can look at, like the 200-day moving average, because the trend of interest rates is primarily driven by what the Federal Reserve is doing. And, so, the Federal Reserve has pretty much said in very, I guess not uncertain terms, that they are going to continue to raise interest rates into this year and probably next year. So, because of this, we believe that we are now in a trend of rising interest rates and that tends not to be a good thing for bonds. And, so because of that, we’re going to be moving approximately half of your and our bond portfolio allocation to short-term cash equivalents. So, we believe that we may be in a 2-year bond bear market. As you know, or may know, as interest rates rise bond prices tend to go down and, therefore, we tend to lose money in bonds. So, we want to shorten the duration of our portfolio. Meaning, the length of time that it takes for bonds to mature and, therefore, how sensitive they are to rising interest rates by virtue of this move that we’re in the process of making.

So, a question that we often are asked by clients is, you know, well, why do we even have bonds at all? You know, we have our sale strategy, why not have 100 percent of our money in the stock market since you’re going to get us out anyway. Well, we don’t really look at bonds as a diversifier against large market shocks. Ok? We agree with the notion that we have our sales strategy, that we want to serve that function. So then, why do we have bonds. Well, bonds are essentially not necessarily that. They’re more of a shock absorber. So, I guess the best way for me to describe that would be, let’s assume for a moment that you wanted to drive from California to Florida. And, let’s also assume for a moment there are no speed limits anywhere. Ok? And you have a choice of cars that you’re going to drive. Well, the fastest way to get you from California to Florida would be if you got a Ferrari, for example, or a Lamborghini, or a Bugatti, or one of those super-fast cars. And you could zoom, you know, at 200 miles an hour, but, you know, those cars are, what, 6 inches off the ground so getting in and out of those is like really hard. And, you know, they feel every bump in the road, and they have basically no sound protection, so you’re going to hear that engine beating in your head the whole time. So, yeah, you can get to Florida pretty quickly but, boy, when you arrive you’re going to need a chiropractor, you’re going to need therapy, you know, so.

Now, contrast that with a Lincoln Continental. Then you do that instead. Ok? So now you’re, and I’m not endorsing Lincoln Continental, just so you know. But it will be a much smoother ride; you’ll have soundproofing; you’ll have eight speaker sound system, you know; it’ll be much more pleasant; and when you arrive, you know, you’ll feel more relaxed. So basically, bonds are that. If we were 100 percent in stocks, you’d be feeling every shock of the market, you know, when it goes down towards where we’re going to sell, you’re going to feel that more acutely. So what bonds do is they kind of smooth the ride for us. That’s why we have them.

And right now, with interest rates rising, we feel that they’re not serving that function. Ok? As well as they were in the past. So therefore, that’s why we’re making the change. So, why now, you may ask. Why not before? I mean, interest rates, the Fed has been raising interest rates. The reason is, is because up until now the rate of return that we can get in cash equivalents, you know, short-term government bonds, has not been attractive enough to warrant us wanting to make this change. Ok? We always want to make sure that if we’re going to make a change, that you’re going to make money on the deal. You know, we want to increase the chances of that the most that we can. And so, with interest rates where they are now, they’ve risen to the point where we believe it makes sense to move that portion of your bond portfolio into very short-term duration investments that have very little volatility, if any. And, the interest rate is now attractive enough that that change, we believe, is warranted.

So, now, if you have 401ks, if you have bonds outside of our purview. If you have bonds in accounts that are not with us, or in your 401k, or in annuities that are not managed by us, then I can’t give you a blanket thought as to what to do with this video or in our emails, so what I would recommend that you do, is you call your Money Matters advisor, and you guys strategize on what to do with those. Ok? Because again, if you have bonds elsewhere, you know, you’re in a different situation and we need to talk about that individually. Any accounts that you have that are managed by us, you don’t need to do anything.

Ok? We’re going to take care of everything for you. We’re going to make this all happen without you having to do anything.

The other question that you may have is, you know, will there be any transaction costs or taxes. From a transaction cost standpoint, there are no additional transaction costs for this change, for anything you have with us. Ok? So, that’s pretty clean there. And from a tax standpoint, we also believe there should be no tax consequence of any significance to any of you for making this move.1

 So, this is purely to smooth the ride and reduce our exposure to rising interest rates and by reducing the duration of our bonds, of our portfolio, and, therefore, hopefully mitigating that risk.

Now, you may ask, well why not sell the entire thing. Why are we only going to move approximately half? Well the reason there is, is because we don’t know. There is a crystal ball right there, you can see, but I haven’t figured out how to turn it on. It doesn’t have an on switch. So, it is possible that we could be wrong and interest rates do not continue to go up and, in fact, they go the other direction. Which, if they did, would make our bond portfolio more attractive. And, so, we don’t want to make a big move on everything because we don’t know what the future holds. But, it is very likely given what the Fed has said that we’re going to see rates rise and, therefore, that’s why we’re making this move.

So, if, there’s an email attached to this video that it will give you more details on your specifics, but for purposes of giving you the heads up, I wanted to do that personally via this video. You know, one of the things that we are so grateful for is that you are our client. That you have chosen us to be your financial advisor. We are immensely blessed and thankful for that, and it really motivates us every day to be, you know, to come to work and to think about you and to do everything we can to have your money last as long as you do, and for you to have financial peace of mind. So, we hope that this email and video reaches you in good health, great spirits, and that you and your family and your friends and you and yours, are all in the best of spaces. So, thanks, again, and we’ll be talking again soon.


1 While we generally don’t believe that there will be any tax consequences as a result of this move for the vast majority of you, please contact your advisor or your tax professional to find out about the specifics of your individual tax situation.