Financially Speaking: The Times They Are A-Changin’ ... Is Your Portfolio?
As I write this, it’s the longest day of the year, which is fabulous, especially when you’re down the shore and on the beach. I had a chance to sit back, relax, and do basically nothing over the past 10 days after undergoing a total hip replacement. The good news is that the pain I had been experiencing was gone when I awoke in the recovery room, then it was replaced by surgical pain, which has been diminishing each day.
This has given me the opportunity to look more closely at the headlines, which unfortunately deliver mostly bad news. How have the following events affected your investments and your ability to relax?
The Middle East is awash with tension. In the past week, Israel began bombing Iran, which, of course, retaliated. Israel is also still engaged in the Gaza war, which rages on more than 20 months after Hamas’ Oct. 7, 2023 attack. That attack sparked a chain of events that contributed to Israel’s recent surprise strike on Iran.
In Washington, the Senate is trying to rework the president’s “Big Beautiful Bill,” with not much success. The Federal Reserve met this week and maintained the current federal funds rate at 4.25% to 4.55%. Chair Jerome Powell stated that the Fed is waiting for the dust to settle following the April 2 “Liberation Day” tariffs.
Social Security was the subject of two Wall Street Journal articles just this week. We’ve been hearing about the projected shortfalls of the Social Security Trust Fund for decades.
The first article, an editorial titled “The Social Security Iceberg Gets Closer,” predicts a 23% cut in benefits expected in just eight years. The projections are even worse than those of the previous year.
The second article, written by Ken Thomas, is titled “Insolvency for Social Security Is Projected to Move Up.” Despite the deficit facing Social Security, on Dec. 21, 2024, Congress – generous as ever with OPM (other people’s money) – passed the Social Security Fairness Act. This legislation increased benefit payments to more than 3 million retired teachers, law enforcement officers, and other public-sector pension recipients. Congress revised benefit formulas to provide more money to certain public-sector workers. The cost is projected to exceed $190 billion over 10 years, potentially accelerating the insolvency of the Social Security Trust Funds.
Amazingly, this bill was passed in an election year despite Social Security funding heading toward a cliff. Funny how that works. Did you know about it?
To ensure the system remains solvent and can pay what it has promised, Congress will need to either raise the cap on income subject to taxation or reduce benefits, which are both extremely unpopular options. In 2025, once you earn $176,100, you stop paying into Social Security for the rest of the year.
Every president, including Donald Trump, has stated they will not cut Social Security or Medicare benefits. Both parties loudly proclaim that the other side wants to cut your Social Security, especially during election years. The truth is that supporting benefit cuts would be political suicide for any elected official. This issue should be one of the hottest topics in the 2026 midterm elections. Congress can no longer afford to keep kicking this can down the road. It will have to act.
All of the above news happened in just 10 days. No wonder investors are nervous.
Bob Dylan released “The Times They Are A-Changin’” in January 1964. Hopefully, our Congress is listening because it still rings true today:
“Come senators, congressmen
Please heed the call
Don’t stand in the doorway
Don’t block up the hall …
For the times they are a-changin’”
One thing I always told clients: Block out the daily noise, which always seems to be in your face. Have you noticed how every news broadcast – whether on cable, social media, or TV – is generally negative? Bad news sells, and that’s what you’ll continue to hear.
During uncertain times, some investors may change how they invest. Knee-jerk reactions, however, are not recommended. You might end up making changes at exactly the wrong time.
There are some investments people traditionally flock to when seeking safety. Consider the following:
Precious metals are often seen as safe-haven assets during turbulent times. Investors are buying not just gold but also silver, which has performed well due to industrial demand. Gold is up 29% year-to-date, and silver is up 12% so far as of June.
Certificates of deposit (CDs) and U.S. Treasuries are guaranteed and currently offer attractive interest rates. You can get 4% on a 1-year CD or a 1-year Treasury Bill (T-bill). T-bills are short-term securities (up to 52 weeks). Treasury Notes are medium-term (2 to 10 years) and pay interest semiannually. Treasury Bonds are long-term (more than 10 years) and also pay interest semiannually.
Money market mutual funds are yielding just over 4%. These options won’t make you rich, but they offer peace of mind during times of uncertainty.
A diversified stock portfolio remains one of the best ways to achieve strong returns, depending on your goals and risk tolerance. Maybe you’ve always been a moderate investor comfortable with 60% in stocks and the remainder in bonds or cash. You should review your portfolio at least every six months and rebalance it as needed. This gives you a chance to adjust before the next wave of negative headlines. Rebalancing can be hard, especially when the stock market is doing well. Many clients would ask why I’d recommend selling stocks that are up and shifting money to bonds, which might be down. But that’s the art of rebalancing; it takes discipline. If you struggle with this, consider working with a fee-based financial adviser.
Another way to gradually reduce your risk is to change what you do with dividends. Many investors reinvest dividends to purchase more shares. Instead, consider switching your dividend option to cash. That way, dividends from your stocks, mutual funds, or ETFs will be added to your money market fund. You can then choose if and when to reinvest.
Stay focused and don’t panic. Now that you’ve tuned out the noise, grab your chair, book, and favorite beverage, and head to the beach to relax.
Fred Dunbar, CLU®, ChFC®, RFC®, AIF®, is the former President of Planning Directions, Inc., a registered investment adviser, and Common Cents Planning, Inc.. Securities are offered through Commonwealth Financial Network®, member FINRA/SIPC. Fred may be contacted at 800-647-0762, by e-mail at freddunbar@commoncentsplanning.com or by mail at 239 Baltimore Pike, Glen Mills, PA, 19342.
Certificates of deposits (CDs) typically offer a fixed rate of return if held to maturity, are generally insured by the FDIC or another government agency, and may impose a penalty for early withdrawal.
Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and, if held to maturity, they offer a fixed rate of return and fixed principal value. U.S. Treasury bills do not eliminate market risk. Bonds are subject to availability and market conditions; some have call features that may affect income. Bond prices and yields are inversely related: when the price goes up, the yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity.
This commentary is meant for general informational purposes only and is not intended to be a substitute for professional financial, tax or legal advice. Investing involves risks including the potential loss of principal. Past performance is no guarantee of future results.
