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Reflections in the New Year

As we begin the new year, thoughts of celebration and planning circulate in our minds and around us. The end of the year is a time to look back at where we have been and how far we have come. New year’s resolutions are a way for us to identify our goals for the next year and define how we plan to incrementally make progress. It is the ongoing management of this plan that is most critical to its success or failure. Like the end of the year for our personal goals, the end of the year for the markets and our financial goals can be a great time to gain perspective. Reflecting on where we have been, how far we have come, and where we think we are headed, gives us a short-term gauge of our progress toward long-term goals. 

2023 was a year of uncertainty. Who are we kidding though – we have been saying that since 2020! The last three years have challenged our resolve, our outlook on life and the way we interact with and perceive the world around us. 2020 through 2021 were our Pandemic years, while 2022 into 2023 were our reentry into society while making an adjustment back to a new normal. Throughout these years, the market also experienced extreme change, positive momentum, challenges, and successes. Like the pandemic era, we can break out significant periods of the market over the last several years that have helped us progress to where we are today. Since the start of 2020, we have experienced stock market corrections and recoveries, supply chain disruptions, inflation, and a rising interest rate environment. This last year was a cautious progression coming out of a pullback in the market at the end of 2022. Investors were concerned about the ongoing challenges they faced in the marketplace and economy while we were experiencing a market recovery. Lingering inflation, rising interest rates, geopolitical conflicts, and the possibility of a recession all emotionally dampened the progress we made. Investors not only want to experience positive markets, but they also want to feel confident during these positive times.

We are still faced with similar challenges as we enter 2024: there are still unknown risks of a potential recession, geopolitical uncertainty and we are now in an election year, but we must also recognize the positive progress we have made toward our long-term growth potential. The S&P 500 returned 24% in 2023, of which a significant portion of this performance was generated by few stocks.[1] According to the recent JP Morgan Guide to the Markets, the top 10 stocks in the S&P 500 generated 86% of the return and expanded to 32% of the index’s market capitalization.[2] The Magnificent Seven (Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla) certainly led the markets in 2023, returning an average of 111% for the year.[3] It can be difficult for investors to see returns like these and wonder why their portfolios have not kept pace with these market leaders. This is an unfortunate comparison though. Like our personal goals and new year’s resolutions, we cannot compare our portfolios, which have been built in a personally diversified manner, to the best performing outliers over a one-year period. We still believe there are opportunities in technology and these market leaders will contribute to this, but we must also consider if this trend can be maintained into the future. We believe a diversified approach allows our clients to participate in positive market environments, while also mitigating the risk of highly concentrated positions and creating some level of preservation for clients’ cash flow needs and goals for the future.

Our philosophy has been to focus on your needs with the risk associated with your portfolio. We took profits in portfolios in 2020 and 2021 and realized some losses in 2022. In 2023, we focused on rebalancing portfolios to prepare for a potential recession, lower interest rates and lower inflation. No one knows with certainty whether 2024 will avoid a recession or when the Federal Reserve will lower interest rates. What we do know is that diversification helps us all sleep better during uncertain times. The goal is to accomplish a portfolio that you are comfortable with during all market conditions.

We look forward to our meetings and conversations in 2024. We hope that 2024 brings you joy and happiness.  

Thomas L. Menzel, CFP®                                             Laura Biermann, CFP®
President                                                                       Vice President

1, 3 Taulli, Tom. “What are the Magnificent 7 Stocks?” Kiplinger, 7 Jan. 2024, kiplinger.com
[2] J.P. Morgan Q1 2024 “Guide to the Markets” as of December 31, 2023

IMPORTANT DISCLOSURES:  The opinions presented in this communication are subject to change without notice and no representation is made concerning actual future performance of the markets or economy.  Information obtained from sources is considered reliable but is not verified.  The research and other information provided herein speak only as of its date.  We have not undertaken and will not undertake any duty to update the research or information or otherwise advise you of changes in the research or information.  Performance information presented is not an indication of future results and index data is provided for market reference purposes only.  This is not an offer to buy or sell or the solicitation of an offer to buy or sell any security/instrument or to participate in any particular trading strategy.  This document is the property of Legacy Financial Advisors and is intended solely for the use of the Legacy client, individual, or entity to which is addressed.  This document may not be reproduced in any manner or re-distributed by any means to any person without the express consent of Legacy.  This material is for educational purposes only.  Mis-transmission is not intended to waive confidentiality or privilege