Q1 2023 Newsletter

May 5, 2023

Market Recap

Following a tumultuous 2022, the first quarter of 2023 saw most major indexes experience a notable turnaround (see chart below), highlighting investors’ willingness to look beyond near-term challenges. Global equities outperformed all other asset classes as optimism around inflation, monetary policy, and economic growth expectations helped buoy markets. To the surprise of many, the rally in stocks was primarily driven by growthier names, reversing the trend from last year in which value stocks significantly outperformed. This rotation in leadership back to growth was largely due to the collapse of several banks which triggered a sharp sell-off in the financial sector. Outside the U.S., developed international equities continued their recent stretch of strong performance relative to U.S. equities and have now outperformed over the trailing six months and one year. A softening dollar, attractive valuations, and an unseasonably warm winter which helped ease fears of an energy crisis were the primary factors that contributed to this outperformance.

Fixed income markets continued to experience unusually high volatility in the opening quarter of 2023 as investors struggled to determine the future direction of rates, inflation, and the overall economy. Fortunately, this volatility led to generally positive returns across broad fixed income. Turmoil within the banking industry drove prices higher on traditionally safer assets like government bonds and investment-grade securities as investors fled for safety. Meanwhile, more speculative areas of fixed income continued to display resilience as attractive valuations and actions by the Fed to stabilize the banking system supported high-yield bond prices.

The swift reversal in market performance during the opening quarter of 2023 was a stark reminder of how markets can behave extremely irrational over the short-term. Looking ahead, the coming months will likely be more challenging as investors face considerable headwinds from a slowing economy, geopolitical conflicts, stubborn inflation, and tighter lending standards due to recent bank failures. Periods of volatility are likely to occur, however, we don’t believe any of this has to be disastrous in the long run. In this type of environment, we recommend investors focus on mitigating risk by utilizing a well-diversified portfolio that emphasizes quality and matches their specific investment timeline.

Q1 2023Trailing 12 MonthsTrailing 3 YearsTrailing 5 Years
S&P 5007.50%-7.73%18.60%11.19%
Russell 20002.74%-11.61%17.51%4.71%
MSCI All Country World Ex-US6.87%-5.07%11.80%2.47%
Bloomberg US Aggregate Bond3.01%-4.72%-2.73%0.95%
Bloomberg Commodity Index-5.36%-12.49%20.82%5.36%
Dow Jones Comp. All REIT Index1.58%-19.58%10.39%5.74%

*Performance data is through 3/31/23. Data according to Vanguard. Return periods greater than 1 year have been annualized.

Cash Management for Individuals and Businesses

Having an effective cash management strategy is vital to reducing financial stress and keeping your household or business afloat during tough times. But have you ever wondered how much cash you should set aside for your personal and/or business finances? The answer to this depends on your particular situation, but there is a simplified method that can help you begin to determine how much money to keep in your different bank accounts.

Here is how the strategy works:

1) Personal Checking Account

We recommend keeping one month of household living expenses in this account as a cushion. For example, if you spend an average of $5,000 each month, then you would need an ongoing balance of $5,000 in your account.

2) Personal Savings Account

For a dual-income family, we generally recommend keeping three to five months’ worth of household expenses in your savings account. If you are a single-income family, you should probably keep five to seven months’ worth of expenses in your “emergency fund.” For instance, if you spend an average of $5,000 each month, you should keep approximately $15,000-$25,000 in your savings account.

3) Business Checking Account

For businesses with consistent cash flow throughout the year, we typically recommend keeping a balance in this account that is at least equal to the amount of cash that comes out of your business on a monthly basis. Thus, if you determine that your average business expenses are $100,000 each month, keep a baseline balance of $100,000 in your business checking account.

However, if you work in a business whose income ebbs and flows according to seasons or economic cycles, we generally recommend keeping three months’ worth of expenses in your checking account. In other words, if your expenses amount to $100,000 each month, keep a baseline of $300,000 in your business checking account to get you through the slow periods.

4) Business Savings Account

Finally, we recommend that you keep two months’ worth of operating expenses in a business savings account. These non-volatile expenses could include basic utilities, rent, debt payments, employee payroll and liabilities, insurance premiums, and so forth. Traditionally, if you have two months’ worth of necessary expenses set aside and you have a fairly stable income, then you can weather the storms that will inevitably come. Once you determine the optimal amount of cash to hold in your accounts, you can then shift your focus to finding the best vehicle to park your savings in. However, there are an overwhelming amount of options to choose from like high-yield savings accounts, CD’s, money market funds, treasury bills or cash management accounts and each comes with their own benefits and drawbacks. Which one is right for you will depend on what factors are most important to you such as yield, FDIC coverage or liquidity. Therefore, we recommend speaking with a financial professional who can help you determine the best solution for your needs.

Setting Your Debt Limits

With wages failing to keep pace with rising prices over the last two years, many households are increasingly turning to credit to bridge the gap. As a result, consumer credit card debt has surged to a record high of $986 Billion (as of 12/31/22). The cost of this debt has also risen substantially, with average credit card interest rates over 20%. Given this troubling trend, it’s likely that outstanding credit card balances will continue to reach new highs in 2023.

While credit can be a valuable tool that allows us to make major purchases and pay for them over time, it can also open the door for consumers to incur more debt than they can comfortably take on. To avoid falling victim to this credit trap, we recommend evaluating your financial situation and determining your own limits rather than allowing lenders to set credit limits for you.

To find out where you stand with consumer debt, which includes all liabilities except your mortgage, create a list of all your monthly debt payments. Then calculate your debt ratio by dividing your monthly debt payments by your monthly net income. The general guideline is to keep your debt ratio under 15%-20%. However, every situation is different and each individual should take into consideration their own unique circumstances and how much debt they are comfortable taking on.

If you have questions or would like to discuss any of the information contained here in greater detail, please do not hesitate to contact us.


AJ, Ryan, Gary, Rhonda and Tom

AJ Gilbert, CFP®

Ryan McCafferty, CFP®

Gary Fortier, CPA

Rhonda Gilbert, CPA

Tom Savage, CPA

Keystone Financial Group, Inc. does not provide legal or tax advice

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The indices mentioned are not managed and cannot be invested in directly. Past performance does not guarantee future results. Diversification and asset allocation strategies do not assure a profit or protect against loss.

Sources used for the article:

  • *T. Rowe Price Investment Research
  • *J.P. Morgan Investment Research
  • *Financially Simple
  • *Consumer Financial Protection Bureau

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