June 1, 2021

Will Bitcoin Become a Major Currency?

Most Bitcoin promoters talk about the eye-popping price of Bitcoin and use that data as confirmation that it is becoming accepted and will soon take over from the dollar as the world’s preferred currency. I’ll be addressing this topic more fully in our June 9^th webinar (10:00 AM Arizona time), but here are some of the high points.

To become a major currency, something must provide ease of transferability, wide acceptance and stable value. The strongest currencies are from countries with 3 attributes: (1) Stable politics (I know our politics may seem crazy at times, but U.S. politics are really pretty tame compared to most places), (2) a strong economy, and (3) a strong military.

Other countries may challenge the U.S. on one or two of those points, but no country outdoes the U.S. in all three. This is why the dollar is the preferred currency around the world.

Bitcoin, is accepted by very few vendors, despite the purported ease of use. Strike one.

Bitcoin “miners” verify transactions as legitimate, but they are very inefficient in doing so, often taking 15 minutes or more. Imagine waiting that long in line at the grocery store for your Bitcoin payment to be accepted and you will see a structural impediment to Bitcoin’s acceptance. Strike two.

Bitcoin’s structure limits the world to a maximum of 21 million Bitcoin in existence. Promoters of the crypto currency say this will prevent inflation since no more can be created. However, as economies grow, currency in circulation needs to grow too. An economy growing at 3% per year needs 3% more currency each year or payment bottlenecks will occur. This inelasticity of supply is the main reason the world went off the gold standard 50 years ago. For this same reason, Bitcoin will have trouble as a worldwide currency.

Strike three – so Bitcoin strikes out as a currency, leaving it as just a speculative asset.

I’ll go into the Bitcoin phenomenon in more detail in in our June 9^th webinar.

May 2021 Market Commentary

(By Ryan Redfern, Shadowridge Asset Management, LLC)

Since the end of April, the S&P500¹ has been in a tight range and as of this writing, it is sitting almost exactly where it was a month ago. However, there are several factors that are looking more positive than we’ve seen in a while – and it seems possible we could get another move up from here. Of course, the market could remain choppy even if it moves higher (certainly more so than we saw in 2020).

Last month we ended with all 11 sectors being positive as of the newsletter writing. But that lasted only a day before declining again. So, we didn’t get the move up we had hoped for. But at that time, other factors, like relative strength, weren’t looking as good as they are now.

As of Thursday night, our Shadowridge Dashboard is showing Positive to Negative sectors as 8 to 3 and that has been improving. Also, most major indexes are showing positive traits, with the NASDAQ still lagging the bunch. Our Mid-Term Cycle indicator went back to positive earlier this week (just like it did at the end of April), so again we’ll remain optimistic that this move up can stay in effect longer than the 12-ish day runs we are currently getting.

Getting back to relative strength, the NASDAQ is on the cusp of retaining its dominance over the S&P 500 (by our metrics), which generally corresponds with a strong market. That and the Growth/Value ratio leaning towards the Growth side would also signal possible strength. But for now, Value and the S&P 500 still want to lead. So, at the moment, we’ve been leaning our investment holdings more into the S&P500.

This month’s chart might be what is most at the forefront of my mind (and many of us at Shadowridge). I’ve brought it up during our monthly webinars on several occasions. It’s the Shiller PE Ratio (or sometimes referred to as the CAPE – Cyclically Adjusted Price Earnings ratio). What makes this an important data point is that the current value of 37.26 is the 2^nd highest Price to Earnings Ratio in the past 150 years. The only time we saw a higher over-valuation was in 2000 during the Tech bubble, and we know how that ended. And that has us thinking of other bubbles that might be setting up to pop.

Bonds – have continued to attempt a comeback, but the Aggregate Bond Index is still just trying to get back to even on the year. The Aggregate Bond Index AGG is now at -2.32%. High Yield bonds remain the bright spot, being up around 1.30% so far in 2021 (FastTrack Data). As long as High Yield bonds remain stable, it is often believed to be a sign that the stock market can have room to continue to move upwards—another factor giving us some possible positive vibes for June.

All that being said, we’ve been leaning into equities (stock market holdings) over the past couple of weeks with cautious optimism. Of course, if that changes, we’ll be quick to protect, as that is always our top priority. But for now, let’s roll!

Don’t forget to catch our monthly webinar version of this newsletter, where I dive deeper into what I mention in the newsletter commentary. For me, nothing tells the story as much as visuals, so that is how I prefer to dig into what we’re doing with investment decisions. After me, Will Hepburn will be talking about the nature of Crypto-currencies, and Laura Redfern will be discussing considerations when couples merge money. We hope you can join us – Wednesday, June 9^th at noon Central time (10:00 AM Arizona time).

1 The Standard and Poor’s 500 is an unmanaged, capitalization-weighted benchmark that tracks broad-based changes in the U.S. stock market. This index of 500 common stocks is comprised of 400 industrial, 20 transportation, 40 utility, and 40 financial companies representing major U.S. industry sectors. The index is calculated on a total return basis with dividends reinvested and is not available for direct investment.

2 Charts are for informational purposes only and are not intended to be a projection or prediction of current or future performance of any specific product. All financial products have an element of risk and may experience loss. Past performance is not indicative of future results.

Mark Your Calendars!

Shadowridge Asset Management, LLC and Hepburn Capital Management are now hosting a webinar each month called “Money Matters.” The next webinar will be Wednesday, June 9th at 10:00 AM (Arizona Time).

You will have the opportunity to listen to a variety of market and financial planning topics from Ryan Redfern, Will Hepburn, Laura Redfern, and Phil Lebkuecher.

To register, please click here.

Attendance is limited, so please sign up ASAP.

We look forward to seeing you there!

Considerations When Combining Finances

(By Laura Redfern, CFP®, Shadowridge Asset Management, LLC)

“Should we combine our finances??” It doesn’t matter your age, gender, sex, or tax bracket. This is a big, important question any time you are considering a partnership.

There are several ways to approach the question of combining finances. Here I’ll describe the two I see most often. It’s important to note that I have seen couples achieve their goals and have a wonderful, healthy relationship using either way. In other words, the method you choose isn’t the most important thing. The most important thing is the commitment and communication of both partners. (Hmm kind of sounds like marriage itself, doesn’t it?)

One Joint Account: All sources of income go in one place (a joint bank account), and all expenses go out from that one place.

Works best for: couples with one income source (i.e., one is the breadwinner, the other is the household bookkeeper) or with couples where one partner is really comfortable with budgeting and finance, while the other is terrified of it. There’s nothing wrong with this. Learning to play to your strengths is an important part of marriage/partnership.

Pros: complete transparency. Both partners can see what goes in and out, down to the penny. Some couples say this creates trust.

Cons: some couples say this creates an atmosphere of judgment and resentment instead because seeing where every penny goes causes fights over what money “should” be spent on. If that’s the case for you, consider the next option:

Yours, Mine, and Ours Accounts: Each partner has their own accounts (yours / mine), and then there is also one joint account (ours) for shared finances.

This requires a conversation to set up (which is a good thing!). Couples need to agree upon what expenses are to be “shared” (ie, the house payment, utilities, grocery store runs, eating out?) and what is not shared (ie, clothing, haircuts, hobbies, personal gifts?). They also need to agree upon how much each person contributes to the account each month. For example, 50% of each person’s paycheck? Or a set dollar amount? Does one person make significantly more than the other, and does this mean that person puts in more? Again, there’s not a right or wrong answer here. Whatever answer you come up with needs to make sense and feel fair to both.

Works best for: couples where both partners are relatively comfortable with managing money; or couples with some past history (ie divorce) that makes separate accounts feel more comfortable.

Pros: some couples say this type of working together as a team is preferable because it helps keep them focused on the “big picture” things in their financial life, rather than fighting over small financial items. It can also help each partner maintain a sense of autonomy and control while maintaining a sense of fairness in the shared account.

Cons: Some couples say this makes them feel too separated. Based on your past experiences with money, and your personal money beliefs, this method could feel “weird” for you. Or, one partner may worry that the other partner may not be managing their money well. Whether or not this is the really the case, it could put stress on the relationship.

The Big Picture

The goal when combining finances is not to be perfect with your money (either of you!). Rather, it is to come up with a system that works for you: one that feels fair and honest, and that each partner can willingly commit to. You achieve this through communication.

A financial planning colleague, Hannah Moore, CFP ®, recently commented:

“Communicating about money… should be a top priority in your relationship. (Not communicating is also one of the biggest mistakes newlyweds make with their finances.)” I think she is so right in this! (And you can read her article about it here)

Talking about money with your honey may not be the most romantic thing that you do, but nonetheless it may be one of the most important – and ultimately rewarding – things that you do together as a couple. Bonus points for communicating in a supportive, honest way! If you’re wondering how that is even possible, check out my post on tips on how to talk to your spouse about money, here.

Money conversations are not easy! But they can be another opportunity to learn about each other, talk about your goals and dreams, and work together as a couple. Aren’t these the keys to a successful partnership? Perhaps – even the keys to a successful and happy life.

You can do it!

Need a Speaker for Your Group?

Having taught classes at the local college for more than 30 years, I often present for both large and small groups and can discuss topics such as Bitcoin, Inflation or Investment Scams.

Now that groups are starting to meet again, if your organization needs a speaker, please have your program coordinator call the office at 928-778-4000 to schedule a time when I can present one of these programs to your group.

What’s Happening in Your Portfolio

Our growth portfolios are on new buy signals and are close to being fully invested again after recently holding large amounts of cash. The Future Technologies model, that I manage, includes stocks or funds that focus on Lithium and battery tech companies, and rare earth metals (needed for cell phones). These types of hard asset investments should do well if inflation continues to increase.

Following the successful model of companies that sold picks and shovels during the gold rush, we also hold companies that make computer mice and keyboards, and gaming devices as casinos again ramp up usage.

Shadowridge’s investment models, run by Ryan Redfern, include consumer and retail funds, as well as funds focused on International, technology and the S&P 500 indexes.

Flexible Income portfolios are also fully invested in corporate bond funds and business lenders, real estate stocks focusing on senior housing and gaming properties, high dividend paying energy infrastructure funds (pipelines, terminals and tank farms).

Although the broadest U.S. bond index (symbol: AGG) is down 2.47% year to date, through May 31^st, our income model has shown a nice profit during this same period.

Municipal income funds are fully invested with a diversified blend of Municipal bond funds.

And that is how we are staying in sync with this market.

How to Determine Your Core Values

(By Phil Lebkuecher, Shadowridge Asset Management, LLC)

It’s easy to claim that we all have values. The question becomes, “What are your values?” The question can seem daunting, but determining what your core values are is an interesting question that I believe must be answered by anyone who seeks to have a more fulfilling life.

Part of the Behavioral Financial Advisor training is a simple but effective exercise to identify your top core values. I have found it very helpful to do this exercise as I now make a conscious effort to align my decisions and actions with my core goals. I wanted to share this with you because it has helped me to bring peace and clarity in making life decisions.

Below, I’ve listed 49 different values. I encourage you to read each value and ask if it’s important to you. You can do this alone, or with a spouse (if you dare!). When you determine a value is important, write it down. When you have gone through the entire list below, stop and take a look at what you have chosen. Now, take that list of chosen values and reduce it to ten.

While you are doing this, you can alter the way a value is labeled. For example, I took “meaningful work” and converted that to “meaningful life” to better fit my definition. Remember, these are your values. Refining or adding to the list means you are giving them deep thought and attention. That’s a good thing.

When you have your list of ten values, challenge yourself to reduce it even further, to five core values. These should be the guiding principles of your life. I equate these values to being like the stars we use to navigate. They are constant and provide the means with which to make decisions in life.

I’m sure that some values have and will change for us as we grow older, so you can do this exercise time and again with new and revealing results.

I hope you consider taking a few minutes to go through this exercise to identify what’s important to you and your loved ones. Who knows, you might even have some fun!

Core Values List

Adventure, Autonomy, Challenges, Change, Community, Competence, Competition, Cooperation, Creativity, Decisiveness, Diversity, Ecology/Environment, Education, Ethics, Excellence, Excitement, Fairness, Fame, Family, Flexibility, Freedom, Friendship, Happiness, Health, Helping Others, Honesty, Independence, Integrity, Leadership, Loyalty, Meaningful Work, Money, Order, Philanthropy, Play, Pleasure, Power, Privacy, Recognition, Relationships, Religion, Safety, Security, Service, Spirituality, Stability, Status, Wealth, Work

PS If you’re curious about my core values: Faith (changed from Spirituality), Family, Independence, Integrity, and Meaningful Life.

If you have any questions or would like to share your results, please contact me!

Have a wonderful summer,

“Mental Floss” Humor

Mysteries of the English Language

Why isn’t a Fireman called a Water-man?
How come Lipstick doesn’t do what it says?
If money doesn’t grow on trees, how come Banks have Branches?
Why are goods sent by ship called CARGO and those sent by truck SHIPMENT?
Why do we put cups in the dishwasher and the dishes in the Cupboard?
Why is it called ‘Rush Hour’ when traffic moves at its slowest then?
How come Noses run and Feet smell?

* The model accounts mentioned in this article are hypothetical examples of how the strategy may work as designed. Performance and activity in client accounts may be different from that in the model in amount of each investment, specific timing of trades, and actual security used, which may vary from account to account. Not all trades are profitable. It should not be assumed that current or future holdings will be profitable. A list of all trades in these accounts for the past 12 months will be provided upon written request.

** Indexes are unmanaged lists of stocks considered representative of a broad stock market segment. Investors cannot invest directly in an Index.

This newsletter may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Information in this newsletter may be derived from sources deemed to be reliable, however we cannot guarantee its accuracy. Please discuss any legal or tax matters with your advisors in those areas. Neither the information presented nor any opinions expressed herein constitute a solicitation for the purchase or sale of any security.

In all investing, past performance cannot assure future results, and as such, our efforts are not guaranteed. Losses can occur. All strategies offered by Shadowridge Asset Management, LLC, adapt to changes in the markets by changing the investments they hold, therefore, comparisons to broad stock market indexes such as the unmanaged indexes mentioned may not be appropriate. Sometimes client accounts are invested in stocks or markets not included in these indexes. Past performance does not guarantee future results. Investment return and principal value will vary so that when redeemed, an investor’s account values may be worth more or less than when purchased. Mutual fund shares and other investments used in our managed accounts are not insured by the FDIC or any other agency, are not obligations of or guaranteed by any financial institution and involve investment risk, including possible loss of principal. Advisory services offered through Shadowridge Asset Management, LLC, a Registered Investment Advisor. Adviser will not transact business unless properly registered and licensed in the potential client’s state of residence.