As we reach the midway point of the year, we thought it would be a great time to reflect on the developments that have recently shaped the financial markets.

The year 2022 was an anomaly for investing, as both stocks and bonds experienced sharp declines. This was primarily due to inflation surging, prompting the Federal Reserve to take measures to curb it. It turned out to be the worst year EVER for bonds and the 7th worst year for US stocks. Consequently, it resulted in the 4th worst year ever for a 60/40 portfolio. The economy seemed to be caught in a no-win situation as we entered 2023. Either the Federal Reserve would tighten credit conditions excessively to suppress inflation, potentially leading us into a recession, or they would ease up, avoiding a recession but likely allowing inflation to persist.

Adding to this challenging situation, the first half of 2023 introduced three new and potentially critical uncertainties: the threat of a US debt default, a number of bank failures that posed a threat to the banking system itself, and renewed concerns about the dollar's status as the world's reserve currency.

Despite all these challenges and consumer sentiment nearing all-time lows, the US stock market has experienced a dramatic rally. The S&P 500 is up 17% year-to-date and is only 9% away from reaching an all-time high. The combination of the Federal Reserve pausing interest rate hikes (with the potential for cuts in the future) and the boom in Artificial Intelligence has propelled the Nasdaq up by almost 40%. However, it's important to note that these returns are largely driven by just seven stocks: Nvidia, Google, Amazon, Apple, Tesla, Microsoft, and Meta. These companies have seen their stock prices rise anywhere from 32% to 187% in just six months. These seven stocks collectively make up nearly 30% of the S&P 500. We believe that such returns in these names may not be sustainable, and it could be a good time to reduce some risk exposure in these high growth technology stocks.

In the fixed-income landscape, most of the damage was incurred in 2022. A "bad" bond market typically sees a decline of around 3%. However, last year, the bond market experienced a 13% drop due to aggressive interest rate hikes. The good news is that we are now witnessing interest rates on bonds that haven't been seen in almost 20 years, and we are highly confident that bonds will rebound with continued patience. Our money market accounts are ranging from 3.25%-4.77%, while some of the bonds we are invested in offer yields over 10%.

The only area that hasn't performed well this year is commodities, which was one of the few positive performers in 2022 (up 16%). In 2023, commodities are down by 8%. Nevertheless, we still believe that "real assets" like commodities, real estate, and alternative investments can enhance diversification.

We are refraining from making predictions about the remainder of the year as predicting the markets over the short run is very difficult. We rely not only on guidance from Northwestern Mutual but also on insights from some of the brightest analysts on Wall Street. However, with a potential mild recession on the horizon and an upcoming election year, we do anticipate a return of volatility and will continue to mitigate risk across our clients’ portfolios through diversification. Diversification and a long-term perspective are key to navigating the market's ups and downs and keep you on pace towards achievement of your financial goals.

If you have any questions, please never hesitate to reach out.

The opinions expressed are those of Freund & Smith Advisors as of the date stated on this material and are subject to change. There is no guarantee that any forecasts made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment or security. Please remember that all investments carry some level of risk, including the potential loss of principal invested. Indexes and/or benchmarks are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance and are not indicative of any specific investment. Diversification and strategic asset allocation do not assure profit or protect against loss.

We’ve heard it for years now, scammers are out there. We are conscious of the stories depicting a stranded family member or friend in a foreign country who needs money wired immediately, the hacked email attempts to gain access to your accounts, or get rich quick schemes. However, in the 30 years since the internet was made available to the public, consumers are more vulnerable than ever.

According to the Federal Trade Commission (FTC), consumers reported losing more than $3.8 billion to investment scams in 2022. That amount more than doubled since 2021! Technology has advanced to such an extent that Artificial Intelligence (AI) is now being used to clone voices of your loved ones. The FTC is warning of scammers using cloning programs, along with short clips of audio posted online of family member’s voices. Consumers receive calls and it sounds exactly like their loved ones.

These scam attempts are targeting consumers of all ages. There was a story in the news recently of a 15-year-old girl kidnapped and a $1 million ransom demanded of her mother. When the mother called her husband, who was on a ski trip with their daughter at the time, he was able to confirm that she was indeed safe with him, despite the mother being convinced it was her daughter’s voice she heard on the phone.

So, what can you do to protect yourself? First, if it seems fishy, it probably is. Trust your instincts, not the voice. Call the friend or family member directly at a phone number you know is theirs. If they don’t answer, try other modes of contact, or get in touch with someone else who knows their whereabouts. Another safety measure is to create a code word or phrase that only you and your loved ones know about. If a call is ever suspicious, you can use this to help authenticate the caller.

The FTC states that most of the scammers are asking you to pay or send money in methods that make it difficult to recover the funds. This includes wire transfers, paying in cryptocurrency, or buying gift cards. 2 All of these should raise a red flag of caution.

As your trusted advisors, we are here to help. Our mission is to keep you informed, not just about your portfolio performance, but also news you can use to keep you and your family safe.

New FTC Data Show Consumers Reported Losing Nearly $8.8 Billion to Scams in 2022 | Federal Trade Commission 2/23/23

Scammers use AI to enhance their family emergency schemes | Consumer Advice (ftc.gov) 3/20/23

Fake Kidnapper Cloned Girl's Voice in AI Scam Call to Mother: Report (businessinsider.com) 4/13/23

You’ve fine tuned your resume, you’ve completed countless applications and interviews, and you’ve finally accepted your first job. Congratulations! You’ve done so much to get to this point, but now what? New college graduates have much to consider and plan for when starting their first job. Our firm focuses on helping our clients make sound financial decisions throughout a career with the goal of building generational wealth no matter the stage in your life.

Here are some important tips for you as you start your first job:

1. Understand your Benefits- This consists of traditional benefits such as 401(k) options, healthcare, and paid time off. Your compensation is more than just your salary so be sure to have a full understanding of what your options are and how to best choose what works for you. Some benefits to think about:
   • Roth or Traditional 401(k)
   • Investment Selection
   • HSA Enrollment
   • HMO vs. PPO
   • Stock Plan Enrollment
   • Paid Time Off
2. Make a Budget- Once you know your net monthly income (your salary minus benefits and income taxes), make a budget. We have templates to help. Consider the following items in your monthly budget:
   • Rent/Mortgage
   • Renter’s or Homeowner’s insurance
   • Utilities
   • Health care costs
   • Groceries
   • Car expenses (car payments, insurance, maintenance)
   • Transportation costs (gas, public transportation, parking)
   • Debt repayment (student loans, credit cards, etc.)
   • Miscellaneous (travel, TV streaming subscriptions, entertainment, cell phone, gym memberships, etc.)
3. Establish a Savings Plan- Your goal should be to save 20% of your gross income. Creating a plan with intentionality and purpose early on in your working career will lead to healthy habits as you get older and your income increases. A basic template for savings shown below:
   • Short-term (0-3 years)
   • Mid-term (3-10 years)
   • Long-term (10+ years)
4. Understand your Student Loan Repayment Options- The average student loan borrower pays between $200 to $299 per month* on student loan debt. Most loans offer a six-month grace period post-graduation before payments begin. Make sure to know what you owe and what the minimum payment will be. Federal student loans offer benefits that private student loans don’t including income-driven repayment plans, deferment periods, potential student loan forgiveness, etc. Refinancing is also an option that could be considered with many factors such as interest rates that should be taken into account.
5. Your 3/5/10 Year Vision- You manifest success with proper planning and positivity. Set your goals for three, five and ten years post-graduation. By taking the time to do this and being strategic with your career moves based on these goals, you will be years ahead of your peers. If you don’t have a plan or a path to where you are going, odds are you will end up somewhere else!

We are here to help. Schedule a complimentary consultation with a member of our team to create a plan that is right for you.

*U.S News March 10, 2023 https://money.usnews.com/loans/student-loans/articles/average-student-loan-payment

We spend a lot of time working with clients to save for their short-term and long-term goals. One of the most common concerns our clients have is saving enough for retirement. Our clients want to have a plan to retire when they want and have confidence in their plan even during market down turns. This article does a great job of laying out some of the major milestones our clients reach toward retirement and some of the changes to expect now that the SECURE Act has gone into effect.

NORTHBROOK (March 20, 2023) – Freund & Smith Advisors, a member of Northwestern Mutual’s Private Client Group, celebrated its grand opening with a ribbon cutting ceremony at its newly designed office space located at 1464 Techny Rd in Northbrook. The new office space will allow Freund & Smith Advisors to help meet increasing demand for comprehensive financial guidance among the growing population in Northbrook and surrounding suburbs.

Principal and Financial Advisor Alex Freund along with Principal and Wealth Management Advisor Kyle Smith were on hand to help kick off the festivities. “We are committed to helping our clients live their lives by design and not default,” said Freund. “It is important that we have a prominent location that offers a convenient space to work with our clients. We are here to help people balance the act of living for today while saving for tomorrow.”

Freund & Smith Advisors is a financial planning firm that helps clients turn hope and ideas into actionable reality. They provide structured, efficient financial solutions for families and businesses so they have a clear path to accomplish their greatest goals. Their mission is to help others mitigate risk, maximize tax strategies, and create impactful legacies as they secure ultimate financial freedom.

Most parents don’t feel that they have enough resources needed to teach their kids about money and they don’t know to approach the topic with kids among different ages. Robin Taub, award-winning author of the best-selling book, The Wisest Investment: Teaching Your Kids to Be Responsible, Independent and Money-Smart for Life, was kind enough to sit down with Northwestern Mutual in an interview and provided some fantastic strategies for parents to teach their kids about money. Her approach includes teaching about the Five Pillars of Money: Earn, Save, Spend, Share and Invest. We encourage you to read the interview here: Raising Money-Smart Kids: A Q&A With Robin Taub | Northwestern Mutual. It’s never too late (or early) to help our kids learn financial literacy!

In February, Freund & Smith Advisors held their first webinar of the year to take a look at the market outlook for 2023 and the recently passed Secure Act 2.0. In case you missed it, here are the highlights:

We are now coming up on the third year anniversary of Covid. In March 2020, the world shut down, while the government pumped money to many consumers and businesses. The consumer was then sitting on excess cash, but couldn’t use it on their typical services. Instead, they used it on goods like pelotons, which lead to an overheating economy in 2021 where inflation went out of control. The Federal Reserve needed to act fast, raising rates exponentially (.75% increase expected vs. 4.25% increase in 2022) which led to a shock to the markets in 2022. The bond market in particular was devasting to client portfolios, as it was the worst year on record in the history of the bond market. The last “bad” bond market was 1993 where it went down 3%. In 2022, the bond market went down 13%.

Where are we now? Inflation peaked late summer 2022. The Fed is starting to slow down on rate increases as inflation continues to normalize. The consumer is still doing well, but spending has shifted towards services (restaurants, travel, etc.) rather than goods. The severity of the next recession comes down to how much the Fed could potentially overtighten. Within the equity markets, we are focused on quality companies with a strong cash flow that can weather a potential recession. With fixed income, we are expecting a strong rebound in the bond market, especially with the current yields and potential rate cuts down the road. There are still a lot of unknowns in 2023, but what we do know is asset allocation and diversification matter. It’s important to never try to time the market based on short-term moves. We like to focus on the long term, with a dedicated diversified portfolio tied to your financial plan and long-term goals.

The Secure Act 2.0 has some new features that are taking effect this year. Alex and Kyle reviewed some of these features and are always happy to do a one-on-one with any client that would like to dig deeper.

Freund & Smith Advisors is proud to participate in Giving Tuesday this year by supporting several organizations our clients value most. There are so many charities deserving of support, we let some of our clients choose where they thought our donations would make the most impact. We are proud to join in this tradition this year, and hope to see it grow in future years.