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  • Writer's pictureJoe Cardello

We want safety, we want certainty, and we want to know that we are always going to be okay!

August 8, 2023

Most of us, most of the time, are biased by the fear of losing what we have. Then, when everyone else is seemingly making money, we ask why aren’t we involved? Think internet stocks in 2000, real estate in the mid-2000’s, and bitcoin in 2021.

“I strongly emphasize the importance of reflection on current circumstances, current and future desires, and what could go wrong. We should ensure that our behaviors in life, spending, saving, and investment are congruent to what we want! “

For August Wealth’s clients, each family’s situation is unique, and we must understand the strengths, weaknesses, and desires of each person. That is why some people joke that our meetings are like therapy sessions. Yet, that is what is required to develop a comprehensive plan, assess a family’s risks, and construct a portfolio which works for their desires.

Today, I want to focus on the fear of losing money, or the fear of adverse outcomes in general. I can tell you firsthand that we have less control over outcomes than we believe. Regardless of how much stress or anxiety we put toward a situation, life will just happen to you: good, bad, lucky, unlucky, joy, and suffering. Live long enough, and you are going to get it all. You don’t have to take my word for it; go ask any wise old person that question, and they will tell you the same.

Now, I am not suggesting that one should live recklessly, apathetically, nor blindly optimistic/pessimistic about outcomes. We can and should control certain aspects of our life, and we should focus on what we can control. We only have a certain amount of energy, and if we are using energy on stress, fear, and anxiety, it is adversely impacting us (and our long-term health). Yet, we can control how we deal with risk and uncertainty, how we move forward during adverse outcomes, and how much gratitude we express for the good in our lives.

Sometimes I get accused of having too positive an outlook. I have been asked if I look through rose- colored glasses, or that I have too much faith in goodness. Nothing could be further from the truth. Many days for me start with negative emotions, however, I am adept at recognizing that they are just MY feelings. It’s not a positive/negative outlook that achieves anything. It’s bravery:

• Assess the current situation. What hand have I been dealt? • What are the risks? What can go wrong?

• What is the opportunity? What is the reward?

What do I need to achieve success?

• Humility – Alone I achieve nothing! • Gratitude – I have been given enormous opportunities and gifts! • Faith in humanity – I believe most people in their hearts are good, but we can all get lost!

• Love of neighbor – Don’t judge, help people, and let them go if they are not ready. • Resiliency – Keep doing your best with what you have (back to gratitude).

What does this mean for the markets:

By reflecting on all the above, you can move forward with a plan that creates resiliency in all outcomes.

This plan always includes:

  1. Your Unique Financial Situation (Risk, Goals, Desires, Financial Reality)

  2. The Market Opportunity Set (Financial Reality and likely outcomes)

We bring together part (1) and part (2) to develop your custom plan and your bespoke portfolio.

The August Wealth Process

Unlike some advisory firms, we are fortunate, because of our background, to have investment management within August Wealth. Other advisors may pay for separately managed funds, mutual funds, hedge funds and private equity (which reduce fees and drag on performance).

We also fine tune each family’s portfolio(s) to their specific needs and risks.

We are selective about which clients we will work with, and we keep the number of our relationships to a minimum to ensure a high level of client care.

Additionally, and unlike large publicly traded banks and brokerage houses, that work to hit quarterly revenue targets, at August Wealth we focus on long term relationships with our clients. As a fiduciary advisor, we work for the best interest of our clients. Our interests are aligned with yours; we seek to grow with you. Most public firms must target quarterly profit and corporate agendas; they must make revenue as a primary goal.

Assessing the Current Market Opportunity:

We always go through the same process:

  • What has (the inputs) occurred to bring us to the current situation?

  • What does the current situation look like (what we know presently)?

  • What are the probable outcomes going forward (the opportunity and the risk)?

Below will provide a high-level overview, and partly subjective assessment. Please call us if you like more detail or want to challenge any points below.

The Past:

  • Coming into 2023, sentiment toward the equity market was defensive and/or outright negative after 2022, which was one of the most challenging markets in history for both equities and bonds.

  • The Federal Reserve continued with its aggressive rate hiking cycle in 2023.

  • The inflation rate and inflation rate expectations continue to fall by most measures.

  • The Federal Government continued to increase spending across broad portions of the economy.

The Present:

  • The sentiment of the market has turned much more positive on equities and the economy. This is likely to do with the performance of most equity indices in the USA year to date. Because of this and high interest rates on offer, we have reduced equity exposure and increased fixed income exposure across most portfolios.

  • Most commodities, apart from gold, remain far below their 2022 high prices.

  • The US Dollar index is essentially unchanged from where it was a year ago.

  • The S+P index is up approximately 17% YTD, but an equal weighting of the S+P index is only up approximately 10%. Mainly due to large technology company outperformance.

  • Government bond yields from 2 years all the way to 10 years remain near their highest levels since 2007. Mortgage rates follow these rates higher.

  • Prices for US residential housing is at record highs according to the US House Price Index (published by the FHFA).

  • Monthly supply of US houses for sale has dropped considerably. Lack of supply is likely keeping prices high in the short term.

  • College debt will start to be repaid in the fall.

  • Private-equity and hedge funds are bracing for what could be the biggest regulatory challenge in years to their business of managing money for deep-pocketed investors. From the WSJ.

  • The NYTimes Peter Coy reports that the US Treasury is considering more permanent and more stringent rules to combat money laundering in Real Estate in the United States. (According to Treasury Secretary Janet Yellen in Dec 2021, the USA is the world’s most sought-after shelter for criminal money).

  • Immigration into the United States is rising. For all the USA faults, it seems demand to live here and try to achieve the American Dream is still strong.

  • The US Government debt continues to grow strongly with no signs of abating.

The Future (What could happen):

  • The probability of recession next year is rising due to the lagged impact of Fed tightening and college debt repayment. Offsetting this risk: government spending still strong, economy still growing because of healthy household balance sheets.

  • Boom / Bust economic cycles seem more likely because of excessive covid policy reactions and behavioral changes across the economy.

  • Employers continue to demand workers back to the office.

  • Immigration (both legal and illegal) could increase the supply of labor for low-income jobs and reduce wage pressure.

  • Currencies backed by governments will lose their purchasing power over time.

  • China may start exporting deflation to the rest of the world. They also may have to devalue their currency against the US Dollar.

  • The Federal Reserve is more likely to cut rates in 2024.

  • Reinvestment risk for those holding T-bills and CD’s is growing.

  • Declining US Rates would likely lead to downward pressure on the US Dollar and upward pressure on commodity prices.

Summary: No investment manager or advisor can guarantee you positive returns. That is because nobody has control over outcomes.

We do control our process, and we are confident that August Wealth’s process is robust. We believe the investment climate will be more difficult to navigate in the coming years because of the long lingering impact of Covid policies; experience will matter.

We believe in our unique background and skill to tactically position portfolios which seeks to protect and grow your wealth efficiently and according to your needs by:

  • Understanding your unique goals and risk tolerance.

  • Keeping your portfolio as liquid and simple as possible to achieve those goals.

  • Keeping risk (volatility of your portfolio returns) low.

  • Delivering hedge fund experience without hedge fund fees (see below**).

  • Keep fees low.

  • Diversification to protect your wealth and reflect the unknown.

  • Invest with common sense; use the fear and greed of others to our advantage.

  • Enjoying our relationship and working toward common goals together.

**It is worth revisiting the impact of fees on performance. If you are invested in a hedge fund, make sure they are the very best at what they do. I originally wrote the below summary into my commentary 2 years ago (August 2021):

In his book, Investing for Growth, Terry Smith of Fundsmith Equity Fund points out the following: “If you had invested $1000 in Berkshire Hathaway in 1965, your investment would be worth $4,300,000 by 2009. Buffett’s company compounded your capital at 20.46% / year. If Warren Buffett had set up Berkshire Hathaway as a hedge fund however, he would have charged you 2% per year and gathered 20% of any annual gains. If you had the same performance numbers, your $1000 would have only grown to $396,000 by 2009. Only $396,000 would belong to you, the investor. This means that of the $4.3million that you would have earned without fees, $3.9m million would belong to the hedge fund manager. This of course is the result if your hedge fund manager had a performance that is as great as Warren Buffett’s.”


Joseph Cardello, Principal

August Wealth Advisors, LLC

51 Riverside Avenue, First Floor

Westport, CT 06880

Direct (916) 461-9451 toll free (800) 985-9477

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