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First Quarter Newsletter

Responsible Guidance:  First Quarter 2023 Newsletter, April 2023

Ask me anything...

Artificial Intelligence or AI in the form of chatbots is starting to make its way to the general public and there have been recent stories about product offerings such as Chat GBT or Microsoft’s new Bing that is powered by AI.  The prompt you get when using Microsoft’s Bing is “Ask me anything…”

Interestingly, you can use the technology to learn about the technology.  We asked Microsoft’s Bing (Bing) “What is a chatbot” and received the following response: “A chatbot is a computer program designed to simulate conversation with human users, especially over the internet. Chatbots use artificial intelligence (AI) and natural language processing (NLP) to understand customer questions and automate responses to them, simulating human conversation.”

We did have some fun asking Bing many questions, but there was one question we asked that produced a response that resonated with us.  The question was “Is it a good time to invest?”  The response we received: “I’m sorry but I cannot provide financial advice or make investment recommendations. It’s important to do your own research and consult with a financial advisor before making any investment decisions.”  Please note that chat results may differ for the same search.

In our last newsletter we discussed the dangers of letting short-term biases impact long-term plans.  There was, at the time, and there continues to be, a lot of concerns about investing.  There always will be.  Knowing this, our approach is to develop customized risk-appropriate portfolios that are globally-diversified and rebalanced when needed, all within the context of Your Personal EconomySM.

If you let short-term concerns or fears impact your long-term investment strategy, you may have missed opportunities during the first quarter.  There are no guarantees investments will go higher or that history will repeat itself.  But historically, results have been solid, with U.S. stock investments going up roughly 70% of the time.  When looking over 20-year periods the results are even better.  Don’t believe us?  Just ask Bing.

A Global Perspective

A core objective for our customized Baron Financial Group investment strategies is global diversification.  Global diversification means including investments based both domestically in the U.S., as well as internationally in developed and developing countries.  There are popular benchmark indexes that provide perspectives about the performance of global investments. 

For equities, we monitor the MSCI ACWI All Cap Index.  This index represents equity investments across 23 developed and 24 emerging markets.  The index was up 6.91% in the first quarter after a positive fourth quarter in the previous year, as equity performance continued to rebound despite concerns about inflation, interest rates, economic growth, and geopolitical risks. 

For fixed income, or bonds, we track the FTSE World Government Bond Index.  The index tracks sovereign debt from 20 countries, denominated in their respective currencies.  It was positive in the fourth quarter, up 3.51%, building on the positive performance in the fourth quarter of last year. 

U.S. Economy

The economic data we follow was solid in the first quarter, though concerns about inflation and rising interest rates impacting economic growth remain on top of investors’ minds.  Up-to-date economic information like the shape of the yield curve, credit availability, and new manufacturing orders reflect either uncertainty or negativity.    

The Bureau of Economic Analysis (BEA) announced in its third estimate for the fourth quarter of 2023 that real Gross Domestic Product (GDP) increased at an annual rate of 2.6% (the full press release can be found at https://www.bea.gov).  This was the second quarter in a row of positive economic growth.  

Due to the normal delay in receiving growth data from the BEA, the Federal Reserve Bank of Atlanta publishes a “nowcast” by estimating GDP growth for the most recent quarter (in this case the first quarter of 2023) using an approach similar to the BEA.  On April 10, 2023, the estimate for first quarter GDP from the Federal Reserve Bank of Atlanta was positive 2.2%.  Note that this estimate is updated regularly and is subject to change.  The “nowcast,” along with the methodology, and additional information can be found at: https://www.atlantafed.org/cqer/research/gdpnow

Job growth remains strong.  According to the Bureau of Labor Statistics (BLS), the U.S. gained 236,000 jobs for the month of March, and the unemployment rate remained below 4%, at 3.5%.  BLS indicated job growth was notable in leisure and hospitality, government, healthcare, and professional and business services (full press release can be found at:  https://www.bls.gov).

U.S. Stocks

The S&P 500, an index consisting of 500 of the largest U.S. domestic stocks, was up 7.50% in the first quarter of 2023.  Companies in technology, communication services and consumer discretionary categories helped lead the way.  For technical analysts and trend followers, the index crossed above the 200-day moving average in January, had a slight dip below later in the quarter, but was able to finish above the trend line.

Dividing index components into growth and value, growth-focused stocks outperformed after trailing value in 2022. 

International Stocks

International developed country equities (such as those in the European Union), measured by the MSCI EAFE index was up 8.47% in the first quarter, continuing its strong performance from the previous quarter.  Non-developed, or emerging countries measured by the MSCI EM index, was up 3.96% for the quarter.  Though many economies outside the U.S are experiencing similar inflation and interest rate challenges and the Russia-Ukraine conflict hits a little closer to home for the European countries, international developed stocks continued to outperform the S&P 500 in the current quarter.  Prior to the recent performance this year and in 2022, the last time international stocks finished ahead of U.S. stocks was in 2017.   


U.S. Domestic Fixed Income (bonds), as measured by the Barclays U.S. Aggregate Bond Index, was up 2.96% in the first quarter.  The index gauges the performance of investment-grade intermediate bonds.  Concerns about a future economic slowdown, reflected in the shape of the yield curve discussed below, caused intermediate-term rates to move lower.  Though the Fed increased short-term rates, the action in intermediate-term bonds helped generate the positive performance.

The 10-year U.S. Treasury bond yield was at 3.48% at the end of the first quarter, below where it began the year at 3.88%. 

If you plot interest rates versus the time-to-maturity to earn those rates, you have created a yield curve. We continue to monitor the changing shape of the yield curve for U.S. debt issues, and what that may signal. Specifically, we follow the shape of the yield curve (plot of interest rates for different time periods).  Using the U.S. Government 2-year bond rate as a proxy for short-term rates and the 10-year U.S. Government bond rate as a proxy for long-term rates, we calculate the difference between the rates, which provides a possible indicator for the future direction of the economy.  A steep spread (long-term rates higher than short-term rates) indicates potential future economic expansion and fixed-income investors are compensated for taking longer-term risk.  A flat spread (long-term rates match short-term rates) is a possible indicator of economic uncertainty and longer-term investors are not being compensated for investing in longer-dated securities.  An inverted spread (short-term rates are higher than long-term rates) possibly indicates future economic contraction.

The first quarter finished with the 2-year rate at 4.06% (and 10-year at 3.48% per above), making the yield curve inverted by 56 basis points (a basis point represents 1/100 of 1%).  The spread was very close to the spread of 53 basis points seen at the start of the year.  The shape of the yield curve may suggest that bond investors are concerned about future economic growth, which may not be surprising, given the Federal Reserve is aggressively fighting inflation.

Housing and Real Estate

Commercial real estate, as measured by the FTSE NAREIT All Equity REIT (Real Estate Investment Trust) Index, was up 3.72% in the first quarter. There is a lot of negative news surfacing about commercial real estate due to rising rates, banking issues and reduced vacancies as work-from-home policies continue.  Commercial real estate is heavily reliant on debt as a business.  Any stresses in the financial industry can impact the important funding that the industry relies on.  The good news is that the concerns are not much of a secret and the index remains positive for the year. 

According to Freddie Mac (FM), the average 30-year residential home mortgage rate has backed off a little, most recently reported at 6.28%.  The 52-week range was 4.99% - 7.08%.  The rate is subject to change and may not be offered in all areas or to all borrowers. 

Natural Resources

The Bloomberg Commodity Index (BCOM) was down -5.36% in the first quarter.  After being the only positive performing index in 2022, it is the only negative performer so far this year for the indexes we cover.  The good news is that lower prices may be an added signal that inflation may be continuing to cool.     

Baron Client Strategies

Planning for multiple outcomes with Your Personal EconomySM is critical to helping our clients answer the simple question "Am I going to be OK?".

As clients know, we are fiduciaries and operate as fee-only advisors, so there is no benefit to us for making investment transactions.  The reasons we make trades are to align clients' portfolios with their customized, risk-appropriate globally-diversified strategy.  Also, we believe the actions we take are potentially strengthening the clients' portfolios or financial positions.  We use this same approach with our own personal money. 

No matter the economic environment, our basic principles remain:

Create a globally-diversified and risk-appropriate strategy.  Validate the investment choices versus peer investments.  Rebalance when needed. Test the strategy in a comprehensive financial plan and obtain regular feedback to update information and advance your financial position.

Your Service Plan

One of our primary roles is to educate our clients to make informed decisions about reaching their goals.  Critical to that process are plan reviews, a process that focuses our attention on your goals, takes account of any changes in your situation and allows us to alter the course, as necessary. If you have had any changes to your financial position or are considering changing financial goals and objectives, please let us know. 

Your Personal Economysm


You may have heard us say that we are happy to help clients with issues outside of investing that may have an impact on their financial lives.  We say things like “Lean on us when you are making a decision with anything with a dollar sign involved.”  So, we have been including this section as a reminder of all our services and to share ways in which we can help clients outside of investing.  

Though you may have felt the pain of higher costs, the higher interest rates resulting from the Fed fighting the increases in prices may offer a benefit to you.  With short-term rates increasing as the Fed fights inflation, there are opportunities to earn higher rates for your cash reserve balances.  If you are carrying any cash balances that are not to be invested in the market and will not be used for three months or more, short-term U.S. Government T-Bills and FDIC insured CDs may offer an opportunity to earn more than 4% annualized returns (subject to change and may not be available, when you decide to invest).  If you have questions or need help placing your short-term cash in T-Bills or CDs, please reach out to us.

As always, it is important to share updates on your financial lives with us.  If you would like to update your plan or just get started, please reach out to us to discuss Your Personal EconomySM.

Concluding Comments

Developing technologies help make research and access to information easier and easier.  But the fact remains that no one or no machine can predict the future.  We believe the best way to position yourself for success is to plan for multiple outcomes, not just one single predicted outcome. Having a financial plan that considers many different scenarios and is specific to your circumstances we believe offers you the best chance to achieve the financial goals and objectives of Your Personal EconomySM.

Baron Updates  

We hope you enjoyed the Spring Training Baseball game in Sarasota!  It was our pleasure to host the event and we enjoyed the opportunity to see so many of you!  Please save the date for our next client appreciation event, Casino Night 2023, in New Jersey on September 28th.  We hope to see many of you there! 

A protective measure we use for our Baron clients is the Trusted Contact form that is kept on file at Schwab and at Baron.  If you have not already completed this form by assigning a trusted contact, let us know.  The more recent Schwab account applications include this form.

As of January 1, 2023, individuals must begin  taking required minimum distributions (RMDs) from their retirement account at age 73, replacing the previous age requirement of 72. In 2033, the RMD age will increase to age 75.  You can read more about RMDs and other educational content, by visiting our Website Blog. You can find articles on our blog where the Baron Advisors are called upon by journalists for their insights on financial planning and investing. They are quoted in such prestigious media outlets as The New York Times, CNBC.com, and NJMoneyHelp.com, among others.  Please contact us if you have any questions.

Remember that you can also visit our website to gain access to your client portal.  Just click on the client-portal tab, which will allow you to view your account information. The client login requires a username and password to gain access to the portal. Please let us know if you would like to create your portal login or if you would like to learn more about what the portal provides, including paperless statements. Contact Baron at 1-866-333-6659 or at info@baron-financial.com to enroll.

Please contact us if you would like a copy of our current registration (ADV) with the Securities and Exchange Commission. You can contact our firm at 1-866-333-6659 or at nicholass@baron-financial.com. You can also find our ADV through the Investment Adviser Public Disclosure system at www.adviserinfo.sec.gov.

Congratulations to Victor, who began his 25th year as a member of NAPFA (National Association of Personal Financial Advisors), the country's leading professional association of Fee-Only financial advisors.  For more information about NAPFA, visit www.napfa.org.

Congratulations to Lucy on her 18th anniversary with Baron!  We are thankful to have Lucy as a member of the Baron Team for 18 years and counting!

Baron Financial Group is honored to be recognized, once again, as a Women’s Choice Award Financial Firm since its inception in 2013.  For more information, you can visit https://womenschoiceaward.com/financial-advisors/baron-financial-group.

Happy Spring!

Warmest Regards,

Baron Financial Group, LLC

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of April 10, 2023, and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by Baron Financial Group to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investment involves risks. International investing involves additional risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. The two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments. Index performance is shown for illustrative purposes only. You cannot invest directly in an index. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client or prospective client’s investment portfolio. Historical performance results for investment indices and/or categories generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. Inclusion of index information is not intended to suggest that its performance is equivalent or similar to that of the historical investments whose returns are presented or that investment with our firm is an absolute alternative to investments in the index (if such investment were possible). Investors should be aware that the referenced benchmark funds may have a different composition, volatility, risk, investment philosophy, holding times, and/or other investment-related factors that may affect the benchmark funds’ ultimate performance results. Therefore, an investor’s individual results may vary significantly from the benchmark’s performance.