5 Financial Lessons From 2022 for a Better 2023 with Kevin Mahn
Episode Description: Hennion & Walsh Asset Management President and Chief Investment Officer Kevin Mahn shares his top 5 lessons for the New Year including how to interpret information from the Fed about inflation and whether it is time to try to time the markets.
A little sneak peek into Keven Mahn’s episode!
Timestamps & Main Points:
00:00 - Introduction
04:33 - Lesson #1: Does the Federal Reserve have a crystal ball?
05:47 - Lesson #2: Past performance is not indicative of future results.
06:56 - Trying to time the market is often an exercise in futility
08:33 - Have a personalized long-term financial plan in place and stay disciplined
10:00 - Consider investment opportunities given the outlook for the economy
Kevin’s Bio:
Kevin D. Mahn is the President and Chief Investment Officer of Hennion & Walsh Asset Management. Mr. Mahn is responsible for all of the Wealth and Asset Management products and services offered at the Firm, including the SmartTrust® series of Unit Investment Trusts (UITs).
Mr. Mahn also was the Portfolio Manager of the family of SmartGrowth® Mutual Funds. These mutual funds were target-risk-oriented “mutual funds of ETFs” designed to track the Lipper Optimal Indices. Mr. Mahn is also the author of the quarterly “ETF and CEF Insights” and “Market Outlook” newsletters and a co-author of the book, Exchange Traded Funds: Conceptual and Practical Investment Approaches, © 2009 Riskbooks. Articles written by Mr. Mahn have been published in The Journal of Investing and The Journal of Index Investing. Mr. Mahn is also a contributor to Forbes, Talk Markets, and Seeking Alpha.
Prior to Hennion & Walsh, Mr. Mahn was a Senior Vice President at Lehman Brothers where he held several senior management positions, including CAO of the High Net Worth Product and Services group within Lehman’s Wealth and Asset Management division as well as COO of Lehman Brothers Bank, during his eleven-year tenure with the Firm.
Mr. Mahn received his Bachelor’s degree in Business Administration from Muhlenberg College and his M.B.A. in Finance from Fairleigh Dickinson University. Mr. Mahn has also served as an adjunct professor at Fairleigh Dickinson University within the Department of Economics, Finance, and International Business. In 2015, Mr. Mahn received the “50 Under 50” award, which recognizes the College’s top alumni business leaders under the age of 50, from the Silberman College of Business at Fairleigh Dickinson University.
Mr. Mahn currently serves on the Board of Directors of NICSA and was formerly a Co-Chair of the NICSA UIT Industry Committee, winning the 2014 and 2016 NICSA MVP Awards for his accomplishments in that role. Kevin also won the Rising Stars of Mutual Funds Award from Institutional Investor in 2009.
Mr. Mahn has appeared in/on CBS News, Fox News, CNBC, Fox Business News, Wall Street Journal, Investor’s Business Daily, Fortune, Forbes, New York Times, Financial Times, USA Today, Bloomberg, Reuters, Nasdaq and Yahoo! Finance.
Links to resources mentioned in the episode!
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Full Transcript:
Kevin Mahn:
I am certainly not suggesting that the days of volatility are behind us because they're not. But what I'm suggesting with better days ahead is I think we have hit peacockishness. I think we have now hit peak inflation and if in fact that's the case and the Fed ultimately stops raising interest rates by the end of the second quarter of this year, well then better days should be ahead for certain areas of the stock market and certain areas of the bond market. But unfortunately Bobbi, not for the US economy.
Bobbi:
You are listening to Money Tips for Financial Grownups. With me, certified financial planner, Bobbi Rebell, author of, Launching Financial Grownups. Because you know what? Grownup life is really hard, but together we got this.
You can't get around it. For most investors, the numbers were pretty ugly in 2022, the S&P 500 finished 2022 down almost 20%. The seventh worst year for the index stretching back to 1929. That is according to FactSet Data. But wait, if stocks were down, was their safety in bonds? That's a no. Bonds, which traditionally do well when the stock market suffers and can cushion the below, that's why we talk about diversification, were also hammered last year. The reason for this is a little bit complicated but has to do with the Fed and inflation and a lot of unusual stuff that happened in 2022 that usually just doesn't all converge at the same time.
In other words, there are very specific lessons that we learned that have us rethinking theories and strategies that we took for granted about investing. And that is what we are going to be talking about today. What are the lessons that we uniquely learned in 2022, and what can we do with them in this new year 2023?
Kevin Mahn, is the President and Chief Investment Officer of Hennion & Walsh Asset Management. Mahn, is responsible for all the wealth and asset management products and services offered at the firm, including the SmartTrust series of unit investment trusts. And we're going to explain what that is in our interview. If Kevin sounds familiar, that's because he is on television a lot talking about investing in personal finance. He does not make a lot of podcast appearances, so this is a real treat for me. He has a unique gift for explaining pretty complicated stuff in a way that makes sense for all of us and is going to motivate us to learn more and just as importantly to take action in 2023. Here is Kevin Mahn.
Kevin Mahn, you're a financial grownup. Welcome to the podcast.
Kevin Mahn:
Thanks for having me Bobbi. It's great to be here.
Bobbi:
Well, it's great to have you here. You are the President and Chief Investment Officer at Hennion & Walsh Asset Management. So you deal with all kinds of different market situations. You also have SmartTrust, which we can talk about a little bit what that is in a few minutes. Before we get to the lessons learned from 2022 that we can bring into 2023, I want to get your general take on where we are as we move into this new year in terms of the markets and the economy, inflation and all the things that people are worried about.
Kevin Mahn:
Absolutely and I think your listeners will be happy to hear Bobbi, that our overall macro theme for 2023 is 'Better days ahead.' Now, when I say that, I'm not implying that the days of inflation are behind us because I think inflation will likely linger for the next couple of years. I'm not suggesting that the Federal Reserve is going to stop raising interest rates because I think they continue to raise interest rates, at least through the first half of next year by another 75 basis points. And I'm certainly not suggesting that the days of volatility are behind us because they're not.
But what I'm suggesting with 'Better days ahead' is I think we have hit peacockishness. I think we have now hit peak inflation and if in fact that's the case and the Fed ultimately stops raising interest rates by the end of the second quarter of this year, well then better days should be ahead for certain areas of the stock market and certain areas of the bond market. But unfortunately Bobbi, not for the US economy.
Bobbi:
All right, fingers crossed for the market at least. And look, the job market's still holding on for the most part. You did bring with you some lessons. We're going to be talking about how to apply the financial lessons learned from 2022 into 2023. You brought along, as I said, five lessons. The first one has to do with the Federal Reserve. We feel like they have a crystal ball, maybe not so much.
Kevin Mahn:
They certainly do not have a crystal ball. And as the saying goes on Wall Street, "Don't fight the Fed." But I also think we should be very careful not to set our entire investment policy based upon the opinion of what the Fed may or may not do next. If you recall Bobbi, at the beginning of 2022, the Fed was suggesting that they might raise interest rates by somewhere between 50 and 75 basis points. Guess what? They raised interest rates by 425 basis points. They told us early in '22 that they thought inflation was going to be transitory. Boy, did that prove not to be the case.
They said in May, after their FOMC meeting that no rate hikes above 50 basis points were even under consideration. Then they raise interest rates four times by 75 basis points. So yes, it's important to factor in what the Federal Reserve may or may not do with their balance sheet and interest rates. But don't assume that they're not going to pivot or change their opinions down the road. You need to build your investment strategy by more than just what the Federal Reserve may or may not do.
Bobbi:
And that brings us to the next lesson, which is basically don't always assume that what happened in the past is going to be indicative of the future. I mean, it's very complicated. We always think, "Oh, diversification is having some stocks and some bonds." But you know what? Sometimes they can both be losers as we've learned.
Kevin Mahn:
Absolutely. As they were in 2022. Bobbi, as we saw the S&P 500 index, one of the largest barometers of the performance of US stocks fall by over 18%. Its worst performance since 2008. We also saw bonds uncharacteristically fall significantly as well, as the aggregate bond index, which takes into consideration investment grade corporate bonds and government securities, fall by nearly 13%. And even investment grade municipal bonds fall by nearly eight point half percent. So sometimes the best made plans around diversification don't necessarily work, but that doesn't mean you abandon diversification.
That doesn't mean you don't try and still employ asset allocation strategies, but you just need to dig a little deeper to find those areas of the market that may provide downside protection and growth potential in different market conditions.
Bobbi:
All right, so the answer must be to time the market. The market's down so much these days. Maybe this is when we put all our chips in at this time, maybe.
Kevin Mahn:
Oh no, no, no.
Bobbi:
Not that I've ever tried to buy at the lowest. Full disclosure to all our listeners, I've done that. I have done that. More in a dollar cost averaging way, but I absolutely am like, "Well, maybe this is the time to put that money to work because it's a little bit cheaper," and then it goes down. So I have tried and failed. Tell me more.
Kevin Mahn:
Bobbi, I've been doing this for nearly 30 years now, as you can see by my silver hair. And what I can tell you is that trying to time the market is often an exercise in futility. Because you got to get it right, not just once, but twice. When to get out of the market and when to get back in the market. And studies show that at least over the last 15 years had you just missed out on the 10 best days in the market, your returns would've been cut in half. That's a significant difference by trying to time when to get in, when to get out, when to get in, when to get out.
What we feel is a better approach is your time in the market building an asset allocation strategy that's consistent with your specific tolerance for risk, your financial goals, and your overall investment timeframe. But trying to go to cash and stay until the coast is clear, unfortunately, we never get that signal that the coast is entirely clear. And by the time you get back into the markets, you've likely missed out on the most significant part of the stock rebounds.
Bobbi:
All right, so that's something that least, I need to work on. We hear a lot about the economy, the economy of one, but it's also an investment plan for one because there's so much noise out there. But really this is personal when it comes to figuring out the best investments for you.
Kevin Mahn:
Yes, absolutely true. And I think it all starts with putting a financial plan in place. Financial plans help you determine ultimately how much cash you need to retire comfortably down the road and also fulfill your other financial goals. Whether that's putting your kids through college, whether that's buying a second home, or whether it's just paying down the mortgage on your existing home. So build a financial plan with a competent professional that will lay out those longer term goals for you.
And then off of that financial plan, implement an investment strategy to help you meet that financial plan. And don't measure your performance by every day, every hour, or even every year by the performance of the stock market, by the performance of the S&P 500. Measure it against that financial plan. That's the only thing that should matter to you or the individual investor, Bobbi is, "How am I doing relative to my financial plan and am I staying on track to meeting my longer term goals?"
Whether you beat the S&P 500 or fell short of the S&P 500, doesn't really matter in that larger context. But if you don't have that financial plan in place, a lot of investors lose sleep because they turn on the TV in the morning, "Oh my god, the markets down x percent. How am I going to be able to retire on time?" Go back to that financial plan or put one in place so that you can measure it accordingly.
Bobbi:
All right, so your fifth and final lesson that we can learn from 2022 into 2023 really has to do with being open-minded about our investments and having different perspectives.
Kevin Mahn:
So true. And again, I've been doing this for 30 years. I obviously have my own set of opinions, but what I regularly do with the investment team here at Hennion & Walsh, is we sit down and we review a wide variety of different outlooks for both the economy and the market. Even those who are historically very pessimistic, others who are notoriously optimistic, but we read them all and we take them all into consideration because if you just keep those blinders on and you only consider your own opinion, your own approach, you may find that you haven't considered enough and you're going to be the first one that you should be blaming for poor investment decisions.
So I think it starts by taking into consideration different inputs, different people's outlooks, and then build your investment portfolio strategies based upon what you collectively believe is going to be the path forward. But don't be afraid to adjust throughout the course of the year because the economy changes, the market changes. Certainly geopolitical factors change. Who would've thought that Russia would've invaded Ukraine and the supply side disruptions would've taken place that we saw in the oil market.
So you need to adjust the factors like that. But even if you're ingesting those investment plan strategies by allocating differently to different areas of the market. For example, Bobbi, let's say during a recession, certain sectors historically perform well, utilities, consumer staples, we all know the names, even healthcare. But that doesn't necessarily mean that you abandon other asset classes as part of your investment plan to meet that financial plan. Work with a competent investment portfolio manager, have that tied consistently with your longer term financial plan. And we think that's a good model for longer term financial success.
Bobbi:
And actually, you picked up on something I was about to remind our listeners of, we're throwing a lot of information at you. That doesn't mean this is something you have to always do yourself. You may, if you have the time and the ability to research it, but sometimes it is good to have a third party on your side. I also want to point out, you have something very interesting. I want you to explain to our listeners, call the SmartTrust series of Unit Investment Trust. Tell us what that is exactly and how that works versus just investing with a money manager. What exactly is that?
Kevin Mahn:
I would be happy to. So here at Hennion & Walsh, we have three legs to the stool, if you will. We have Hennion & Walsh Incorporated, which is that that full service broker dealer, which helps individual investors meet their financial goals. We have Hennion & Walsh Asset Management, which is our registered investment advisor, which manages money on portfolio, or discretionary basis for our clients. And we have SmartTrust's Unit Investment Trust, where we have 26 different strategies that are part of a Unit Investment Trust wrapper. If you're not familiar with UITs, they are another 1940 Act product similar to a mutual fund or an exchange traded fund.
But the primary difference with the UIT is that each series has a defined life between 15 months and 24 months generally. And the underlying portfolio components generally remains static over the life of the trust. So it allows investors to invest in a portfolio strategy for a defined period of time and also have discipline to stay true to those investments. You know exactly what you own and for how long so that you can invest around that UIT strategy.
It's been one of the biggest areas of growth for our firm, and we're so happy to be able to work with many different financial advisors and their clients across the country with our SmartTrust UIT portfolios.
Bobbi:
Yeah, and I think that's an interesting thing, maybe another episode on that. But mutual funds, very often they get branded as something, but the portfolio manager has a lot of freedom, which is sometimes a good thing, to make so many changes that you may buy something that's labeled as such but isn't what you think you're buying. So with this, you know what you're buying, it's a defined period and it's an interesting thing to look at. Where can people get in touch with you?
Kevin Mahn:
They could reach out to us directly. Our number here at Hennion & Walsh is 800 836 8240. You can visit us at hennion&walsh.com or you can even visit us on smarttrustsuit.com to find out more about our SmartTrust UITs.
Bobbi:
Thank you so much, Kevin.
Kevin Mahn:
My pleasure, Bobbi. Have a great year.
Bobbi:
A big thank you to so many of you that have already bought my new book, Launching Financial Grownups, Live Your Richest Life, by helping your almost adult kids become everyday money smart. This book was not easy to rate because I had to get honest with myself about what was working with my teen and young adult kids and what was not working. And I also had to be prepared to share it with all of you. So first of all, thank you for your support and your wonderful responses to it.
There's definitely some things in there that you may not have been expecting to hear. By the way, I got a lot of help from my money expert friends and also financial therapists and parenting experts. I am really happy with how, Launching Financial Grownups, came out, even though it really was hard to be, like I said, that honest and it was a lot of work, but I really love doing it and I'm really happy with how it came out.
On that note, if you have not already, please pick up a copy of, Launching Financial Grownups, today. After you do, please share it on social media. Please leave a review on Amazon. Those reviews are super important because the algorithm picks up on them, and that can make the book a lot more visible to more people. So I truly appreciate it and I really also appreciate all of your support.
When I listened back to my interview with Kevin, I was actually tempted to take out a notepad and start taking notes. There was just so many great insights there. The good news is you don't have to take notes because, as always, we have not just the show notes, but also a full transcript right on my website, bobbirebel.com just for you. You just go to that website, click on the podcast tab, and you can find this podcast episode. And frankly, our entire catalog of incredible guests sharing insights about how we can all be our best financial grownups.
Thank you for sharing this time with me. If you're enjoying the podcast, I need you to take a moment, you can do it right now, just hit pause. Do a screen grab, put a quick post on social media. Tag me on Instagram. It's @BobbiRebel1. Everywhere else, it's just Bobbi Rebel. Tag me, so I can say thank you and share it. And please, if you are not already, this year give yourself the gift of free information to improve your financial wellness.
Get on my newsletter. It's free. There's a link right in the show notes for that as well. Big thanks to Kevin Mahn, of Hennion & Walsh Asset Management for helping us all be financial grownups.
Money Tips for Financial Grownups is a production of BRK Media, LLC. Editing and production by Steve Stewart, guest coordination, content creation, social media support, and show notes by Ashley Wall. You can find the podcast show notes, which include links to resources mentioned in the show, as well as show transcripts by going to my website, bobbirebel.com. You can also find an incredible library of hundreds of previous episodes to help you on your journey as a financial grownup. The podcast and tons of complimentary resources associated with the podcast is brought to you for free, but I need to have your support in return.
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