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The $trategist - There and Back Again

QUARTER 4, 2022

There and Back Again

Tom Wargin CFP®, CFA

Usually in the first newsletter of the year I recap the last year and give my view or outlook of what the new year will bring as far as the markets are concerned. I think we can all agree that 2022 from an investment standpoint was something we all would want to forget. On the bright side it wasn’t as bad as 2008 unless you were heavily invested in Tech or Cryptocurrency. Certainly, we didn’t have much exposure to tech and zero direct exposure to crypto. 

Inflation was the key topic for us and the Federal Reserve as they embarked on one of the quickest rate raising and monetary tightening periods since 1981. That caused the bond market to sell off and present us with double digit declines at the same time as the stock market, which hasn’t happened since the early 1800s according to Vanguard. Thankfully, we had tilted your income exposure to the shorter-term maturities and avoided a lot of the large losses. 

As a counter point to Tech, we have always tilted your portfolios to more value investments since over longer periods of time it has consistently outperformed growth style investments. For example, based on a Standard and Poor’s study going back to 1968, value stocks gained 14.6% annually on average compared to 9.7% for growth stocks. Now it may not seem that way due to tech stocks large run up from 2014 to 2021. However, according to Standard and Poor’s, value stocks only trailed by 2.5% per year over that time period. When value stocks outperformed growth, they did so by over 7% per year, according to the same study. (Credit to Gary Barohn CFA for some of those statistics.)

Because of the large increase in inflation, some investors are comparing this time period to the late 70’s and early 80’s. We don’t believe inflation will hit the numbers it did back then of 13.5% in 1981. We think inflation will stabilize around 4-5% by the end of this year. Based on that, if the Fed stays true to its word, income rates for intermediate bonds should be in the range of 5-6%. Finally, you can actually earn some decent income from your bond holdings. That should also temper some of the volatility in stocks. 

We’ll have to see how corporate earnings are affected by goods inflation; that will be a key indicator for their performance this year. So far, goods inflation is declining but service inflation continues to increase. It is our belief that 2023 will be positive for the stock markets but possibly only in single digits unless earnings are greater than expected. In that case the market may surprise to the upside with double digit returns.   

May you have a Happy and Healthy 2023!

Client Alerts

Shannon Nook FPQP™

2023 Contribution & Catch-up Limits: 

IRAs = $6500 + $1000 

401k, 403b, 457 = $22,500 + $7500 

Simple = $15,500 + $3500 

Secure Act 2.0 New Year New Rules: 

  • IRA Catch Up Contributions for those over age 50 will be indexed for inflation in 2024 in increments of up to $100. In 2025, anyone age       60-63 who is funding a 401k/403B or a SIMPLE plan will see catch-ups increased and adjusted for inflation as well. The new rules will         allow more to increase their power of compounding for retirement! 
  • Required Minimum Distributions (RMDs), anyone who turned 72 after 12/31/2022 will now begin RMDs at age 73.  Plus, a sunset                 provision over the next 9 years was added, to anyone who turns 74 after 12/31/2032 will begin at age 75  Of course this change does           not affect inherited IRA/Roth RMDs.  Don’t worry we’ll stay abreast of bringing your new RMD dates to your attention!
  • Reduced penalty if you forget to take your RMD, now 25% of the portion you missed rather than the previous 50% penalty.  
  • 529s: Unused funds may be rolled over penalty free beginning in 2024 directly to a beneficiary’s Roth IRA (maximum over beneficiary           lifetime $35k).  The 529 plan must have been in existence for at least 15 years, and any earnings on contributions made within the last         5 years are ineligible for this tax break. You can also use 529 funds to pay up to $10k of qualified student loans.


Planning Notes

June A. Schroeder RN, CFP®

Credit Score Changes:

New credit scoring systems will incorporate payments for rent and utilities which will benefit lower income families when applying for mortgages over the next few years according to the Federal Housing Finance Authority. Changes are coming to how medical bills ae reported as well.

“Quiet Quitting” on the Rise:

More prevalent in those born after 1989, just doing the minimum at work has become a problem. Focusing on things outside work or “work-life balance” has affected U.S. productivity and efficiency. This behavior makes them most likely to be the first to be laid off when the time comes for work force reduction and reduces promotion opportunities and pay increases.

Trees increase home values!

Research by several university horticulture programs shows that homes with well-maintained trees increase the sale value by up to 15% when compared to similar homes without trees in their landscape.

Car Payments

Monthly car payments were at a record high of $733 in mid-2022.  According to Edmunds, since then prices of used vehicles plunged in December 2022 and are now similar to new car prices of 2010. 

Car Rental Tip:

Consider adding a “loss damage waiver” when renting a car if your personal auto insurance does not cover this. This prevents you from being responsible for the lost resale value of your rental vehicle should you be in an accident whether your fault or not.


Liberty Tax Prep Clients: 

We will send out a blast email or snail mail message in early February requesting your 2022 tax season input either through our online tax software account or regular mail.  If you would like an in-person tax specific appointment, please make an early call to the office, 262.785.1377, or schedule using our online calendar by clicking here.  


Featured Artist: Dan Rice

Dan was born and raised in Wisconsin. Over the years, he developed a unique perspective on its beauty. According to Dan, “Cold winter skies, warm summer sunsets and crisp autumn mornings are not just the images I’ve captured through my viewfinder.  They are the memories of my childhood."  

From seascapes to cityscapes to picture-in-picture to dimensional matting, Dan Rice is surely among Wisconsin’s most unique and creative artists. See more of his work displaying his love for Wisconsin at our office or go to Focus On Wisconsin for more enjoyable viewing.