Upticks: Beating Inflation with Matthew Navickas

By Jake Falcon on February 10, 2022

On this episode of Upticks, Jake is joined by Matthew Navickas, AAMS® who serves on the Research & Trading Group at Falcon Wealth Advisors. After Matthew interned at Falcon Wealth Advisors in 2019, we knew we wanted to bring him aboard full time. On this episode, they chat about how the Research & Trading group operates, inflation and more.

 

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I was recently joined on Upticks by Matthew Navickas, AAMS®, who serves on our Research and Trading Group here at Falcon Wealth Advisors. After Matthew interned at Falcon Wealth Advisors in 2019, we knew we wanted to bring him aboard full time. A Kansas City area native and KU graduate, Matthew is currently studying to earn the Chartered Financial Analyst credential. A summary of our conversation is below.

 

Jake: Matthew, when did you become interested in finance and the stock market?

 

Matthew: Back in high school, my dad and I would explore companies and identify stocks we believed could perform well. I thought it was fascinating to look at companies and think about how you can grow your money. Now that I’m a professional, pursuing this passion while helping our clients reach their financial goals has been rewarding.

 

Jake: You and Abby Stockman, AAMS®, make up our Research and Trading Group, and your role is to research the market and individual stocks, and to execute trades. Would you please talk about what your typical day looks like?

 

Matthew: Our day is typically divided between two parts. The first part involves looking at our clients’ portfolios and ensuring their investments are lined up with their financial plan. Sometimes we determine their portfolios need to be rebalanced.

 

The second part of our day is examining the market’s performance; we use Bloomberg software to research companies and make investment decisions. We work to take advantage of opportunities for clients as they present themselves.

 

Jake: Yes, I believe Bloomberg is one of the premier pieces of software for wealth advisors. I’m pleased the technology we’ve invested in allows you to easily analyze a client’s portfolio and receive alerts if it is out of balance. I like that we are able to marry powerful technology tools with your team’s knowledge of the market and the financial plans of our clients.

 

Matthew, can you talk about the quarterly emails the Research and Trading Team sends to clients that details their investments?

 

Matthew: We detail all recent investment decisions in this quarterly email that’s sent only to clients. We’ll discuss any stocks we bought or sold—and why—while listing all the current stocks in the portfolio, as well as some background information about the companies themselves.

 

Jake: Yes, if you’re a Falcon Wealth Advisors client, look for the Q1 2022 email in mid-April. I’m glad this email can offer some context and commentary behind our investment decisions.

 

Speaking of communicating with clients, I’m happy you and Abby are able to have investment conversations regularly with clients.

 

Matthew: We’re happy to discuss and explain investments or talk about the market’s general performance with clients. I invite clients to contact us with any questions about your investments.

 

Jake: I know our clients value being able to have a quick conversation with you rather than having to schedule a meeting with me or Cory Bittner. As the wealth advisors on our team, Cory and I lead on strategy and offer big-picture advice to clients, while you and Abby are contributing to the research efforts that provide the foundation of our advice. And as we discussed, you and Abby are also executing trades.

 

I enjoy the investment committee meetings that happen each week. This gives us a chance to talk about the investment portfolio and ensure we’re all on the same page about strategy.

 

Let’s now talk about inflation, the topic of today’s show. If you pay close attention to the news, you know inflation is running at around 7%. Many clients are concerned about inflation. Matthew, what are we doing from an investment perspective in this inflationary environment?

 

Matthew: With the Federal Reserve likely to raise interest rates to combat inflation, at Falcon Wealth Advisors we’re looking at strong, stable companies that have cash on hand that they can use to reinvest in their business or pay shareholders. We prefer these types of companies to ones that will likely have to borrow money after interest rates rise. We’re avoiding companies that look like they may have to borrow money in the coming years, as the cost to borrow is expected to rise.

 

We’re also re-examining our bond portfolio. With the Federal Reserve expected to begin raising interest rates in March, we’re aiming to lower the duration of bonds we own for clients. We currently prefer owning 3-year bonds instead of, say, 10-year bonds. This is because the sooner you receive repayment on your bond’s principal, the sooner we can invest that money in a bond yielding higher interest rates.

 

Jake: I just read this morning that the Fed has not raised interest rates more than 0.5% at one time since 2000. We believe the Fed will probably raise interest rates around a quarter of a percent in March, right?

 

Matthew: It’s a bit up in the air, and that’s one reason I think we’re seeing so much volatility in the stock market. Investors are trying to anticipate what will happen.

 

Jake: How many times do you think the Fed will raise interest rates this year?

 

Matthew: I think 3-4 times is most likely.

 

Jake: And currently banks are able to borrow money at about a 0% interest rate. If the Fed raises interest rates 3-4 times this year, banks may have to eventually borrow at around 1%. While this will tighten the economy, it seems unlikely mortgage rates, for example, will jump to 10%. Still, if you need a mortgage, it’s probably better to get one now than in a year, wouldn’t you say?

 

Matthew: Absolutely. It’s a great time to lock in a low interest rate.

 

Jake: Let’s shift back to bonds. You mentioned we’re aiming to buy bonds with shorter durations, so that we can buy higher-yielding bonds in upcoming years. Can you talk about the inverse relationship between bond prices and interest rates?

 

Matthew: Sure. As interest rates rise, we will see the prices of the bonds that people currently own decrease in value. This can be alarming, because most people view bonds as a “safe haven” in their portfolios. However, even though the value of bonds will fall, we stay focused on letting bonds reach maturity, so that you can collect interest payments and get back your principal.

 

As long as you hold bonds until they reach maturity, there is no reason to panic about the value of your bonds. And, of course, when we buy bonds for clients, we choose stable companies that we believe are unlikely to default.

 

Jake: Yes, so many clients are accustomed to this low interest rate environment and seeing the value of their bonds rise as interest rates fall, all while earning interest.

 

Again, we know the value of bonds are going to decrease when interest rates rise, but we’re comfortable with this, as we’re planning to hold these bonds until they reach maturity.

 

This is why I do not recommend owning bond mutual funds. If interest rates rise and other investors in your bond fund sell their shares, you’re essentially locking in a loss. Our clients don’t have to worry about this because they own individual bonds—they’re not pooled with other investors. This makes things more cumbersome to manage on our end, but it’s absolutely worth it to make sure our clients have the control offered by owning individual bonds.

 

If you are invested in a bond fund, even in your 401(k) plan at work, call Falcon Wealth Advisors today and we can suggest some alternatives.

 

Let’s now talk about stocks. None of us enjoyed seeing the value of our portfolios decrease in January, but at the end of the day, it doesn’t directly impact Falcon Wealth Advisors clients. Can you talk about why clients should try avoid feeling anxious about market volatility?

 

Matthew: The media and others can make us feel fear during times of volatility, but we look at investments for a long time frame—we’re typically focused on what a stock’s value will be in five years. We believe all the individual stocks we buy for clients will be worth more in five years than they are today, so we don’t feel it’s necessary to panic about day-to-day price fluctuations.

 

Jake: In addition, we encourage clients and work with them to ensure they have at least five years—and sometimes 10—worth of living expenses invested outside the stock market in cash and bonds. This means if they need to access money in their portfolio, they don’t have to sell a stock at a low point. This also means they don’t have to closely follow the market’s performance on a day-to-day basis. The money you live off of in the near term should not be invested in stocks. That’s no way to live.

 

Clients also benefit from the interest they earn from bonds, and the dividends they earn from stocks. In fact, another benefit of shorter-term bonds is they’re less impacted by rising interest rates, so if we do need to sell a short-term bond before it reaches maturity, it’s typically not a significant event for your portfolio.

 

Matthew: In regard to beating inflation, I recently read a note from Blackstone. It stated that since 1995, in the times when interest rates rose by at least 50 basis points, the stock market went up by at least 3% in the following three months. I think some of the volatility we would expect to see when interest rates rise is already being priced in now, and this could allow for a smoother path for the market after rates go up.

 

Jake: And this is why we don’t like using exchange traded funds. Some sectors are going to perform better than others in an inflationary environment where interest rates are rising. But put simply, the market is not going to crash because of rising interest rates. Events that everyone sees coming do not typically lead to a crash.

 

Matthew, historically speaking, aren’t stocks one of the top investments to own to beat inflation?

 

Matthew: That’s correct. As we discussed, inflation is currently around 7%. There aren’t many bonds paying 7% interest, so owning some stocks is critical for any investor regardless of their age.

 

Jake: I tell clients all the time that half of what we do is financial planning, tax planning, and retirement planning, while the other half is managing our clients’ investments. Our clients have confidence that we will make good decisions regardless of what type of environment we’re in.

 

If you would like to work with a nimble team that can manage your portfolio in this inflationary environment, please contact Falcon Wealth Advisors today. You can reach me directly at Jake@falconwealthadvisors.com.

 

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