Q4 2023 Quarterly Letter

January 2024

Happy New Year! From everyone at Ratio Wealth Group, we wish you and your loved ones a healthy and prosperous 2024. 

As the year ended, I went back to our previous quarterly communications to see where our directional commentary might have been additive and where we might have been off the mark in our observations.  This is always an interesting exercise.  Last January, we mentioned a “Wall Street” consensus forecast of a modest 4% increase in the S&P 500, for 2023.  I also wrote that there are two types of forecasters in the world… those who don’t know, and those who know they don’t know, humbly adding that we at Ratio identify in the latter category.  The S&P 500 finished the year up ~24%.

Large companies to small companies, growth to value, US to non-US, all were positive in 2023.  Even the pain that was felt in the bond market during 2022 reversed course.  Fixed income is now seemingly back to its boring, old self of pre-2008 levels, an asset class to complement a balanced portfolio where volatility is tempered, and healthy yields are available.  What a novel, but welcome concept.

While market participants breathed a healthy sigh of relief over the last year, let us focus on where the camps of “hard” landing and “soft” landing missed the mark.  Part of the fuel that pushed account values higher was that neither of these scenarios really played out.  The current reality could be described as barely a “touch-and-go” or no landing at all.  Inflation is now palatable, GDP expanded at its fastest rate since the fourth quarter of 2021, and with interest rate relief on the horizon, maybe, just maybe, normalized economic growth is possible.

While we all want to look towards the future, some reflection can be a valuable tool and a reminder for investors not to get consumed by short-term performance.  Headlines all year identified the major driver for the S&P 500 in 2023 as the Magnificent Seven (Apple Inc., Microsoft Corp, Amazon.com Inc., NVIDIA Corp., Alphabet Inc., Meta Platforms Inc., and Tesla.)  In 2023, these stocks had an average return over 100% and accounted for 62% of the S&P 500’s total return.  Impressive!  Without this group, the index return was just under 10% (Source: S&P Dow Jones Indices – January 3, 2024, U.S Equities Market Attributes December 2023). 

Now let us zoom out.  For the trailing two-year period, these seven names are up only 2%, or a whopping 1% annualized.  When added back into the S&P 500, the index is up a little over 3%.  Small and mid-cap US companies, as measured by the S&P 400 and S&P 600, are down 2% and 6% respectively, over the last two years.  All world indexes are similarly off, down around 5% (ACWI All World Index).  Even the bond market’s return to glory still has a lot of ground to make up to get back to 2021 levels (the US Aggregate Bond Index is down 13% over the trailing two-year period).

This observation is not meant to be anything other than witness to a wild ride since the COVID pandemic.  A pandemic that led to massive stimulus in the form of cheap money, that led to weird supply chain issues, that among other things, led to inflation not seen since the 1980’s, that led to aggressive rate increases, that led to recession fears, that led to an essentially flat 24 months, where we might have been able to skirt total capital market collapse after all.  It also serves as a reminder that diversification, and not trying to time the market, wins over time.

With all that said, and all that chaos behind us, the US economy appears stable and broad valuations seem reasonable, relative to modest growth expectations. With the Federal Reserve recently suggesting rate cuts as early as March, investors started to rebalance portfolios and reposition some of the nearly $6 trillion sitting in money market funds.  Diversification that did not help early in 2023, began to work as the year ended.  Non-Magnificent Seven, smaller US equities and non-US equities, all saw double-digit returns in the fourth quarter.

Ratio’s investment team used the last three months of the year to slightly shift weightings down in market cap, based on large valuation spreads and our year-long belief that a recession was avoidable.  We also added to fixed income allocations during the back half of the year, based on attractive yields farther out on the yield curve.  We are optimistic for a healthy investment environment in 2024 driven by the factors mentioned above.  We remain committed to customizing your investment allocations to produce the best risk-adjusted returns to support your long-term planning objectives.    

One common strategy we recommended early in the year was to take advantage of money market rates in the 5% range for fixed income allocation and liquidity needs.  This was a sound strategy as an aggressive Fed made short-term cash equivalents a viable investment option for the first time in years.  As indicated, the Federal Reserve is now expected to lower the overnight interest rate several times in 2024, as their fight against inflation is coming to an end.  US labor demand has also softened slightly, giving additional hope for sustained lower inflation.  Money market yields will fall in step with these interest rate cuts, so now is the time to reassess cash and bond allocations. 

We will be working with those of you who have larger allocations to money markets to strike a balance between near-term liabilities (an upcoming purchase, or monthly outflows to fund ongoing expenses, for example) and long-term returns, with appropriate risk.  Based on your individual needs and risk tolerance, we anticipate further increasing holdings in intermediate-term fixed income and equity assets that will benefit from the upcoming interest rate cuts. 

For those seeking lower volatility, excess cash can go into bond funds and bond ladders, where we can now lock in higher yields.  For clients with longer-term horizons and the ability to weather temporary market troughs, our globally diverse equity ETF models provide the long-term growth necessary to outpace inflation and build wealth.  The market values of both stocks and bonds generally go up as interest rates drop, while money markets are always priced at $1 per share.  Staying in cash, in hopes of entering the market at a lower price point in the future, is a form of “Market Timing”, a strategy that has historically underperformed our preferred strategy of “Dollar Cost Averaging” (the practice of systematically investing at regular intervals).

You hopefully notice that I sign off with a recognition of gratitude.  We all remain grateful to be a trusted resource on matters that hold such crucial importance to each of you.  Whether you are in the early stages of saving, or you have worked hard and just don’t want to mess it up before your pending retirement, our dedicated group of very experienced planners and investors is here to support you in 2024 and beyond.   

With Gratitude,

Derek      

Disclosure

Ratio Wealth Group, LLC (RWG) is a registered investment advisor located in Colorado. RWG and its representatives are in compliance with the current filing requirements imposed upon registered investment advisors by those jurisdictions in which RWG maintains clients. RWG may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. RWG’s web site is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment related information, publications, and links. Accordingly, the publication of RWG’s web site on the Internet should not be construed by any consumer and/or prospective client as RWG’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet. Any subsequent, direct communication by RWG with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of RWG, please contact the SEC, FINRA or the state securities regulators for those states in which RWG maintains a filing. A copy of RWG’s current written disclosure statement discussing RWG’s business operations, service, and fees is available from RWG upon written request. RWG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to RWG’s web site or incorporated herein, and takes no responsibility therefor. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended or undertaken by RWG) made reference to directly or indirectly by RWG in its web site, or indirectly by a link to an unaffiliated third party web site, will be profitable or equal the corresponding indicated performance level(s). 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 deductions of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. Certain portions of RWG’s web site (i.e. newsletters, articles, commentaries, etc.) may contain a discussion of, and/or provide access to, RWG’s (and those of other investment and non-investment professionals) positions and/or recommendations of a specific prior date. Due to various factors, including changing market conditions, such discussion may no longer be reflective of current position(s) and/or recommendations(s). Moreover, no client or prospective client should assume that any such discussion serves as the receipt of, or a substitute for, personalized advice from RWG, or form any other investment professional. RWG is neither an attorney nor an accountant, and no portion of the web site content should be interpreted as legal, accounting or tax advice.

To the extent that any client or prospective client utilizes any economic calculator or similar device contained within or linked to RWG’s web site, the client and/or prospective client acknowledges and understands that the information resulting from the use of any such calculator/device, is not, and should not be construed, in any manner whatsoever, as the receipt of, or a substitute for, personalized individual advice from RWG, or from any other investment professional.

Shawn Wallace, CLTC
Managing Director

720.420.4866 Direct
shawn@RatioWealthGroup.com

“The first time I meet with prospective clients I love getting to know them, exchanging life stories and learning about their goals and dreams. The best moment is when they realize that we’re a great fit and that we are the advisors they have been looking for. I like to think my people skills rival my financial skills! At Ratio, I’m proud that everything we do revolves around our client’s plan. Our goal is for them to trust us as their advisor and planning resource for decades to come.“

Shawn has been a dedicated planning agent for the over seven years, focusing on the comprehensive insurance and investment needs of affluent clients throughout the country. He offers expertise in optimization tactics during the accumulation phase, as well as tax efficient distribution strategies for clients. Shawn also brings a unique perspective and industry knowledge to the table as a United Airlines pilot and Boeing 787 instructor.

After graduating from Indiana State with a Bachelor’s of Science Degree in Aerospace, Shawn flew for the United States Air Force and is a proud veteran of Desert Storm.

Work : Life

Shawn lives in Denver with his wife and two sons and they all love to travel and are avid sports fans. Shawn is also an avid microbrew fan and will happily tell you his favorites. He is also a Board Member of the Wings Over the Rockies Air and Space Museum.

Nancy Kimball
Executive Assistant

720.420.4860 Direct
Nancy@ratiowealthgroup.com

“Helping people find happiness in the little things, moments or even daily miracles brings me joy! I thrive to make sure the Team at Ratio is prepared for all of their clients’ needs in and out of the office. Patience, appreciation, research and knowledge are key to my success at Ratio. I love helping our ratio Team thrive every day.”

Nancy brings a long career in advertising sales where she worked for Blair Television in various cities including New York. She came to Denver where she worked at the NBC News Affiliate, Channel 9. After leaving the Television Industry, Nancy changed career paths to a more administrative supportive role. She worked for mortgage and real estate CEOs and supported various other CEOs as a Consultant. Nancy is well versed in planning, communication and anticipating the needs of the Ratio Team and their clients. She received a Bachelor of Arts in Speech Communication and Broadcasting from Colorado State University. She is also a Certified Yoga Instructor.

Work : Life
Outside of Ratio, Nancy enjoys spending time with her husband and cheering her son on during his many sports, especially hockey. Her favorite hobbies are Pilates and playing the piano. She enjoys volunteering wherever she is needed at her son’s school, on her HOA Board in her neighborhood, and serving the homeless in the Denver community.

Michelle E. Buquet Director Of Business Development

720.420.4860 Direct
michelle@ratiowealthgroup.com

“Life is most rewarding when you enjoy what you do. I truly love meeting new people and discovering what connects us; whether that is mutual friends, goals or passions. The one common thread throughout my career is helping other people attain their vision. Ratio Wealth Group does just that for their clients. I can personally speak to this as a client who believes in the process so much, I wanted to become a member of the team. Here, we take a holistic approach to helping individuals turn their financial aspirations into reality. As a client of Ratio and now a team member, I am confident in our services, candor and appreciation of the people we serve.”

As Director of Business Development at Ratio, Michelle brings a wealth of talents and experience to our team thanks to her varied background in sales and marketing. One of her most rewarding experiences was working for Colorado Ski County where she instituted the 5th Grade Ski Passport which allowed 5th graders to ski at almost every mountain in Colorado three times for free. Luckily for us, Michelle discovered her true passion is bringing people together and creating synergist partnerships.

Work : Life
Michelle is the proud mom of four kids. She is an adventurer, traveler and art lover. Her true passion is being with friends and family. She also loves taking advantage of all that Colorado offers; skiing, live music and hiking.

Lauren S. Young, CFP® Vice President, Client Advisor

720.420.4873 Direct
lauren@RatioWealthGroup.com

“I’m passionate about helping people determine their financial goals and then working with them to make sure they can achieve them. I enjoy helping our clients understand “financial language” so that they feel confident when making financial decisions. An important role I play is reminding clients of their goals and helping them stick with them. The difference between us and other financial advisors is our focus on getting to know our clients and connecting with them. That’s as important to us as performance results.”

Lauren has earned a Certified Financial Planner™ designation and has been working in Wealth Management industry for nearly 15 years. She has extensive experience in trust administration, estate planning, retirement planning, and education planning. She has a degree in Business Administration with concentrations in Marketing and Finance from Gonzaga University.

Lauren also created a Kids and Money workshop and is passionate about empowering teenagers with the knowledge and expertise to create their own financial futures.

Work : Life
Lauren is a sports fanatic and loves to ski, bike, go to the mountains, cheer on the Denver Broncos and Colorado Avalanche and spend time with her husband and two kids.

Josh Freedman, CFA
Chief Operating Officer

720.420.4863 Direct
josh@ratiowealthgroup.com

“After 30 years in the finance industry, I have seen many different investment strategies employed by multiple firms.  I am thrilled to be at Ratio Wealth Group because I believe that the firm’s holistic approach, our investment philosophy, and the services we provide are the best way to ensure our clients’ financial well-being and peace of mind.  It gives me great pleasure and satisfaction to work with such talented people – both coworkers and clients.”

Josh has worked in just about every aspect of the asset management business – from trading and securities research to compliance and operations. Before joining Ratio Wealth Group, Josh was Chief Operating Officer and Chief Compliance Officer for several independent investment advisors, most recently Ballast Equity Management, LLC. He has experience in investment research and portfolio management in both the equity and fixed income markets and began his career in client service and sales and marketing.

Josh holds a Bachelor of Business Administration degree from the University of San Diego and a Masters in Business Administration, with a specialization in Finance, from the University of Denver. Josh is a CFA charterholder and a member of the CFA Institute and CFA Society Colorado.

Work : Life
Josh and his wife enjoy traveling and being in the mountains to ski, ride and hike whenever they can. Josh is also a dedicated, if slow, swimmer and runner. His favorite pastime is annoying his grown sons with the worst dad jokes he can find.

Dominique Caraveo
Client Relations Manager

720.420.4867 Direct
dominique@RatioWealthGroup.com

“Money is an incredibly vulnerable subject. At Ratio, money can be discussed without fear of judgement or pressure all within a space that ensures trust and care. As a first-generation college graduate, I have learned what it’s like to not have been provided with the tools to make yourself financially successful until much later in life. At Ratio, financial advice is coupled with education to ensure that each of our clients has the tools and resources to write their own financial story.”

Dominique focuses on client relations management at Ratio Wealth Group. She has 5 years of client service experience helping clients navigate their financial planning needs. Dominique holds a B.A. in Liberal Arts and an M.S. in Marketing both from Regis University.

Work : Life
During her free time, Dominique enjoys playing tennis, pickle ball, cooking and spending time with her family.

Darren Spreeuw, PhD
Portfolio Manager

720.420.4879 Direct
darren@RatioWealthGroup.com

“I am an educator at heart. I love talking with clients about the economic theories that underlie financial markets, and helping to clarify their understanding about how things work. I’m also a musician, and a little known fact about me is that I pick up foreign languages easily – accents and all. I’m proud to work at Ratio because we are a true fiduciary, putting our clients first, while practicing and promoting best ethical practices with kindness, empathy, and respect.”

Darren has approached the capital markets from a myriad of angles over the last 22 years. At Ratio Wealth Group, he focuses on portfolio management, portfolio analytics, planning integration and client relations. He works closely with the entire Ratio team to insure complimentary investment strategies are thoughtfully integrated into tailored financial plans.

As an academic economist, Darren taught graduate level econometrics, finance and economic theory at several universities, and conducted firm-theory research in Eastern Europe as a Fulbright Scholar. In the private sector, Darren has provided thoughtful strategic analysis to a range of firms, from small family offices and RIAs, to big-data firms overseeing portfolios of mortgage-backed securities.

Darren is a Founding Executive Board Member of the Colorado Student Leader’s Institute, an affiliate of The National Conference of Governor Schools. He holds degrees from San Francisco State University (BA Econ) and The American University (PhD Econ).

Work : Life

Outside of the office, you’ll find Darren fixing anything that breaks at one of his many rental properties, cheering on his kids’ soccer teams, skiing, climbing, cycling, and playing beer-league hockey.

Beth Steininger Wraga
Managing Director

720.420.4865 Direct
beth@ratiowealthgroup.com

“I believe that taking a holistic approach to your financial well-being paves the way to a life abundant in success, happiness and meaning. I have a deep background working with financial institutions and a strong desire to serve others with empathy and integrity. This combination gives me an ideal foundation to aid individuals and families in planning and achieving their life goals.”

Beth brings twenty-five years of institutional financial services experience in sales, research, and operations to her role as Managing Director. Prior to Ratio Wealth Group, Beth worked as the Director of Investor Relations and Marketing for two different hedge fund advisors that were focused on the technology, media, and telecom sectors in the public and private markets. Previously, she worked for Goldman Sachs as a Vice President in Institutional Equity Research Sales and in the Global Investment Research Technology Group. She also worked at Paine Webber (now UBS) in Investment Research and started her career in its Management Audit and Controls analyst program. In addition, Beth is a Certified Life Coach – she uses this training and passion to help clients identify core motivations, values, and goals in their wealth management discussion. Beth received her Bachelor of Business Administration from the University of Texas at Austin.

Work : Life

Beth lives in San Francisco with her husband and three sons. She is passionate about travel, theater and cheering on her boys.

Graham C. Gerlach, CFP®, AEP®
Co-Founder, Owner, Partner

720.420.4871
Graham@RatioWealthGroup.com

Graham brings a varied and highly valuable combination of expertise to Ratio Wealth Group, advising on all aspect of our business. Graham is also a Co-Founder and Chief Revenue Officer of Inclined Technologies, a SaaS software company focused on driving better long-term outcomes for whole life policyholders.

Graham holds a (BA) from Denison University (Religion and Psychology) and is a member of the Denver Estate Planning Counsel.

Work : Life
Outside the office, you’ll find Graham enjoying American and European Football, cooking outside and fine tuning esoteric knock-knock jokes with his kids.

Derek J. Scarth
Co-Founder, Owner, Managing Partner

720.420.4872 Direct
derek@RatioWealthGroup.com

“I am incredibly grateful to assist families in developing a thoughtful strategy for their specific needs and imparting trusted advice. I truly subscribe to a life in service for others. At Ratio, we take a team approach to caring for our clients. I want individuals and families to know that we take tremendous pride in providing confidence and harmony around estate and financial objectives. We know that assets are only valuable as part of an prearranged mosaic and are truly dedicated to being a dependable resource at every turn.”

Derek’s professional experience began in public/private equity analysis and institutional portfolio management. He is well versed in business development and operational management for both for-profit and not-for profit entities. Prior to co-founding Ratio Wealth Group, Derek was a Portfolio Manager and Managing Director for Inspire Capital Partners. Previously, he was a Partner at Denver Investments LLC, where he served as Co-Portfolio Manager for Large-Cap Growth institutional clients and on the Westcore Large-Cap Growth Fund. In 2003, he assisted the investor relations team of Newmont Mining Corporation (NEM -NYSE) in a public offering capital raise. Derek began his investment career as an Analyst and Assistant Portfolio Manager for Berger Funds, which was acquired by Janus Capital Management in 2002.

Derek received his bachelor’s degree from Regis University and holds a master’s degree from the University of Denver – Daniels College of Business.

Work : Life

When he’s not actively engaged in the Ratio community, you will find Derek spending time in the Colorado mountains with his wife and their three sons. Derek is very proud to give back to his alma mater as the Regis University Board of Trustees Chair. He also is an assistant boys soccer coach and mentor at Regis Jesuit High School.

Disclaimer

No client or potential client should assume that any information presented should be construed as personalized financial planning or investment advice. Personalized financial planning and investment advice can only be rendered after engagement of the firm for services, execution of the required documentation, and receipt of our disclosure documents which we will provide upon request. For more regulatory information regarding Ratio Wealth Group please visit the SEC’s website at www.adviserinfo.sec.gov

Licensing

Investment advisory services offered through Ratio Wealth Group, a Registered Investment Adviser.

Graham Gerlach CA Insurance License #0C37975, State of Domicile, Colorado
Shawn Wallace CA Insurance License #0G59657, State of Domicile, Colorado

We have representatives licensed to sell securities in the following states: AZ, CA, CO, DE, FL, GA, HI, ID, IL, KS, LA, MA, MI, MN, MO, NC, NE, NH, NJ, NM, NY, OH, OR, SD, PA, TX, VA, WA, WY. State of Domicile, Colorado

Ratio CRD: 6705290