UPDATE ON THE MOVE FROM TD AMERITRADE TO CHARLES SCHWAB
This article is to update clients who hold investment accounts through us with TD Ameritrade. As previously discussed, Charles Schwab Corporation acquired TD Ameritrade in 2019. Since that time, TD Ameritrade has been working with Charles Schwab & Co., Inc. ("Schwab") to move all accounts from TD Ameritrade to Schwab. The FINAL transition is set to occur over the Labor Day weekend and to be completed on September 5, 2023. Recently, clients received either an email or letter from TD Ameritrade with this update.
It is important to reiterate that no action is required by clients for their accounts to make the move. Most importantly, we will remain the advisor with no changes to investment positions, fees, service, etc. With Schwab as the new custodian of your account(s), what will change are the statements and trade confirmations. For those who access their accounts electronically, there will be a different website and app to use. Beginning July 31st, clients will be able to create access to Schwab's client website and their app. When logging into the current TD Ameritrade client app or website (www.advisorclient.com), a prompt will appear with those instructions. The instructions will also be included in the "Key Information Letter" that Schwab will mail to clients on August 5th.
There are a few other important dates to mention regarding the move. Beginning August 18th until the final conversion on September 5th, certain service-related requests (such as address, name, or beneficiary changes) will temporarily be suspended. Also, clients with online access will continue to use the existing website (www.advisorclient.com) through September 1st. Over the Labor Day holiday ("transition") weekend, however, account access will not be available. Starting Tuesday, September 5, 2023, clients will begin using the Schwab client website and app to view and access their accounts. (At that time, the TD Ameritrade website and app will no longer be available.) At no time will there be any interruption in how accounts are invested or in the ability to make deposits, withdrawals, or for us to place trades and manage the accounts.
As always, if there are any questions regarding the conversion or with online access to your account(s) with Schwab after conversion, please don't hesitate to call our office at (412) 856-7300.
MARKET OUTLOOK
We started 2023 facing strong headwinds after ending the prior year with losses in nearly every investment asset class. It was the first time since 1969 that both stocks and bonds incurred losses in the same year. By February of 2023, the war between Russia and Ukraine commenced, which contributed to rising energy and food prices around the world. In March, Silicon Valley Bank collapsed, becoming the largest bank to fail since the 2008 financial crisis. Several regional banks followed suit shortly thereafter. The Federal Reserve continued to increase interest rates to combat inflation. By April of this year, they had increased rates 10 times in 12 months, which was the fastest rise in history.
We're now past the midpoint of 2023. Surprisingly, both the S&P 500 and Nasdaq stock market indices are showing healthy gains year-to-date, but that is not necessarily reflected on most investors' account statements. That is because most of the gains year-to-date have been enjoyed by a small handful of companies. According to Morningstar, only seven stocks accounted for almost 75% of the total market return by June 26th of this year. These seven are mostly the technology giants who suffered the greatest losses in 2022 but are now overvalued. As for inflation, it has eased this year but is still higher than the Federal Reserve's target of 2.0%. It seems that much of the inflation now will be "sticky" and harder to combat. At their June meeting, the Fed decided to skip a rate hike but had not ruled out the possibility of further hikes in 2023.
The possibility of a recession by late 2023 or early 2024 still exists, though the probability has decreased. There are several reasons why we could see a "soft landing" for the economy should we enter a recession. First, companies have been expecting economic weakness and have already begun cleaning up inventories and further strengthening their balance sheets. Second, the U.S. labor market remains solid with unemployment at relatively low levels. There are far more job openings than the number of people looking for jobs. Finally, the U.S. consumer is in relatively good shape. Consumer debt is low compared to levels during the global financial crisis and other more typical recessions. As inflation comes down, it could give a boost to the housing market and overall consumer spending.
Despite a looming recession, there are conditions leading to investment opportunities in several asset classes and sectors of the economy. The first opportunity is in the bond market. The Federal Reserve is likely near the end of their rate hiking cycle. Investing in bonds before rate peaks has historically provided strong returns for bonds. Next is the significant amount of cash on the sidelines, which can be a bullish signal. With higher yields on money market funds and a pullback in stocks last year, investors' flight to cash has surpassed that of the pandemic and financial crisis. According to Capital Group, there is approximately $5.42 trillion on the sidelines in money market funds as of 5/31/23. But conditions are starting to shift in 2023 and money is starting to flow out of money markets. As money market yields peak then begin to fall, investors will be looking to move cash back into the markets. This could have a bullish impact on both stocks and bonds. If fact, the last two peaks of balances in money markets were during the global financial crisis in 2009 and the pandemic in 2020. According to Capital Group, total return for the six-month period after the S&P 500 stock market index bottomed during those periods was 55% and 46%, respectively. As for opportunities in the different sectors, utility providers will play an important role with energy transition and in the "greenification" movement as they work toward solutions and the need for new energy grids. Industrials could benefit by supplying the infrastructure for those grids. Healthcare companies should be able to withstand recessionary conditions because they have experienced less supply chain inflation and currently have strong balance sheets. More focus will likely be placed on defense as geopolitical tensions continue. With growth slowing, dividend paying stocks have become more attractive. Dividends are expected to contribute to a larger portion of total return moving forward. Lastly, valuations on many of the international stocks are attractive, as they have lagged the returns of U.S. stocks for the past decade. Additionally, they could benefit from a declining dollar and from reshoring supply chains away from China (referred to as "onshoring" and "friend shoring").
Of the many money managers and portfolio strategists with whom we consult, one common theme exists-the resiliency of the economy and the U.S. consumer. All this is important because consumer spending accounts for approximately 70% of America's gross domestic product, the broadest measure of the economy.
UNDERSTANDING INVESTMENT FEES AND COSTS
Have you ever wondered what fees or costs are associated with your investments? In some way, ALL investment products have costs or fees associated with them. Because fees will ultimately reduce your annual investment return, it's important to be aware of and understand those costs. The fees discussed below pertain to investment products that are considered securities, such as mutual funds, stocks, bonds, variable annuities, and exchange-traded funds ("ETFs"). Non-security investments such as bank savings or money markets and insurance products such as fixed or indexed annuities will typically deduct the cost of the investment from the stated interest rate.
For securities, investment fees and costs generally fall into two categories - transaction costs and ongoing fees. Both are dependent on the type of investment product you choose. Many products carry both transaction and ongoing fees. In addition, fees incurred will also be dependent on the type of account held and arrangement with the investment professional, which is discussed later in this article.
Transaction costs - These are associated with buying and selling securities and are incurred at the time of an investment transaction. They are primarily designed to compensate the investment representative and broker-dealer firm transacting business on your behalf. They include:
Commissions - added to the investment when buying and selling stocks and other securities Sales load charges - added onto the share price when purchasing certain share classes of mutual funds or deducted when shares are sold Markups or spreads - incurred when an investment professional sells you securities that the firm has in its inventory, which is usually the case when buying individual bonds Surrender charges - deducted when you make an early withdrawal from a variable annuity
Ongoing Fees - These are fees that occur on a continual basis and are not transaction-based. Most ongoing fees are designed to cover the cost associated with advice or professional management of assets by the investment advisor, advisory firm, or fund manager and are expressed as a percentage of the share price or value of the account. They include:
Annual operating expenses - charged by all mutual funds and ETFs for the ongoing professional management and marketing of their products and are deducted from total assets Investment advisory fees - charged by an advisor who is providing ongoing investment advice, regular reviews, and hands-on portfolio management 401(k) fees - for operating and administering a 401(k) plan that are passed on to the participants (employees) and would be in addition to the annual operating expenses of the mutual fund investments held in the plan Variable annuity fees - to cover any insurance features or optional riders that are in addition to the subaccount (mutual fund) operating expenses
If you choose to work with an investment professional, the fees you incur will largely depend on whether or not the professional is offering a "brokerage" account or an "advisory" account. Brokerage accounts will likely incur some type of transaction cost, such as a commission or sales load, as well as ongoing fees, such as operating expenses. In contrast, advisory accounts will incur ongoing fees, such as operating expenses, as well as investment advisory fees. You may also incur minimal transaction costs, but not commissions or sales loads.
We, at Horizon Financial Advisors, offer both brokerage and advisory accounts. Which is best depends on the client's needs, investment objectives, and the relationship and service desired. It is also dependent on the client's investment patterns and total assets under management. Over the long term, total fees may ultimately be greater with an advisory account due to the additional service and advice being provided.
If you have questions on the above or need further clarification on the fees and costs you are incurring, please call our office. Further clarification is also provided in our Form CRS, Client Relationship Summary, which can be found on our website at www.horizonfinancialadvisors.com.
SUMMER HOURS
As we have done for many years, we adjust our office hours during the summer. We have already begun operating on "summer hours", which means our office closes each Friday at noon. We will continue to do so through September. As always, our voicemail message provides an emergency contact should anyone need our assistance after hours.