We hope you are doing well and have had a wonderful fall. We are making some changes in your investment accounts and wanted to send you a brief update explaining the changes.
As you are aware, this year has been difficult for both the stock and fixed income markets. As the Federal Reserve has continued to raise interest rates, bond prices have fallen but yields have increased. This increase in interest rates has continued to make equities volatile. The Federal Reserve has said that they will continue to raise rates well into 2023.
While the economy is not technically in recession, we believe there is a significant probability of a relatively short and shallow recession sometime in 2023. Typically, as the economy enters a recession, equities and bonds will begin to rebound as the markets anticipate recovery. While we believe we are approaching the end of the bear market cycle, we want to take steps to remain in positions that will hold up well through the volatility.
Our team is conducting an overall rebalance of all accounts, but the primary changes you will be seeing are in the equity allocation. There are three funds in the equity lineup that have slipped out of the top of their category. When that happens, we typically replace those positions. After extensive due diligence on these replacement funds, we believe these positions will outperform within their category in the coming months. The replacements are in the top of their peer groups currently in performance-relative-to-expense and provide the broad diversification we are seeking to mitigate risk in your accounts.
Another reason we are making these changes before the end of the year is for the purpose of tax harvesting. There will be some tax losses realized by making these trades and those losses could be beneficial to you as you prepare your 2022 income tax return.
Remember, the end of the year is a great time to update your overall financial plan and keep score regarding your finances. If we can help you with any of this “score keeping” please do not hesitate to reach out.
Again, we wish you and your family a very Merry Christmas and a prosperous New Year.
- The Trinity Team