Jim Niedelman:
It’s time for this week’s edition of 4 Your Money. We’re joined by Brad Fritz, financial advisor of NelsonCorp Wealth Management. Great to see you, Brad.
Brad Fritz:
Thank you Jim, great to be here today.
Jim Niedelman:
Now let’s get to it. The Federal Reserve played a big role in the financial markets in 2020, while markets certainly needed help at the start of this pandemic. Do you think they’ve gone too far with the policies?
Brad Fritz:
I don’t think they’ve gone too far, I think what initially happened back last a year ago now was totally justified. In the reference of liquidity, credit markets were frozen, there was a difficult time in bond markets to the point where if you wanted to sell your bonds, if you could, you took a serious discount, and some areas of the bond market were frozen. So for the Fed to step in and to put a backstop on that and say we’re going to provide the liquidity this economy needs at that point in time, was a huge lift for the markets. It made all the difference in the world for when our markets do that quick turnaround there in March, during that period of the pandemic.
Brad Fritz:
There was literally a period of time where I think nonfinancial folks probably were not aware of how severe the overall condition of the economy was, just due to the lack of liquidity in the marketplace. Which is huge because the bond market is the largest free market in the world and liquidity is a very important item in there, and if we don’t have that, markets don’t move economies, don’t move and things don’t grow. So I think think the Feds did the right thing. The hard question is going to be is when is enough?
Jim Niedelman:
Well let’s get to that, because what is something you look at now where you see some cause for concern?
Brad Fritz:
Cause for concern now would be whether or not to continue the buying process. And I say the buying process because what they’re doing is funding the economy right now, or the treasury right now, by buying government bonds. So we had a chart for the graphic to show where some of those things went in context with the markets.
Brad Fritz:
For example, looking at high yield indexes right now. Money flowing into or out of the economy is a risk on play or a risk off play. So investors were willing to take on a little extra risk in that junk bond market at a 4% yield, which you can see historically has always been much higher. But I think as long as the government continues to fund and help out we’re not going to see a problem anymore of liquidity. And as long as they understand their mission and when to slow it down, and not to slow it down too soon, because that will probably create a real problem for the economy if they just shut it down, and I don’t think they’re going to do that.
Jim Niedelman:
So how should investors digest this in terms of their own portfolios?
Brad Fritz:
Caution. Caution is the word for that because you have to know what you own, why you own it, and at the same time when to probably move into or move out of certain allocation parts of the economy. So again, is the maybe additional one, two, 3% amount of risk or return over safer treasuries, the right thing at the right time for all investors, the answer is no. So everybody needs to pay attention to their situation and make sure that what they own is where they should be, and not just following the message of the day.
Jim Niedelman:
Brad Fritz, thanks so much for your time with NelsonCorp Wealth Management.
Brad Fritz:
Thanks, Jim.
Jim Niedelman:
And if you missed any of this discussion we’ll have that available for you on ourquadcities.com.