Annual Letter

01/05/2025|Tumwater Wealth Management|

I’m happy to report on another successful year as we chase your financial goals.  As you know, our plan and our portfolio are driven by those goals, rather than by predictions about the economy or the markets.  This will continue to be the case in the coming year, and beyond.  As always, I’ll start by restating some of our core beliefs and proceed to some comments about the current economic/financial environment.

GENERAL PRINCIPLES

  • We are goal-focused, plan-driven, long-term stock investors.  Our portfolios are based on and driven by your most important financial goals, rather than on anyone’s guesses or forecasts about the economy or the markets.
  • We believe the economy cannot be consistently forecast and the markets cannot be consistently timed.  We believe there is not only no advantage to going in and out of the markets, but that it is actively detrimental to your wealth in the long run, regardless of whatever happens to be going on in the markets at the moment.
  • We therefore believe the most effective way to capture the full long-term return that stocks have historically delivered is to remain fully invested all the time.
  • We are therefore prepared to ride out the stock market’s frequent, often significant, but historically always temporary, declines.  We believe that even during difficult markets, our reinvested dividends will buy us more, lower-priced shares – and that the power of compounding will continue, to our long-term benefit.

CURRENT COMMENTARY

  • Driven primarily by a handful of the largest technology stocks, the past year was another exceptionally good one for diversified investors.  As the year wound down, the gains seemed to come from a larger and broader set of companies.  We hope to see that trend continue in 2025 and beyond.
  • The presidential election result was at least clear and uncontested.  The economy continued to grow slowly.  The job market remained fairly strong, despite a slight cooling off toward the end of the year.  Corporate profits and dividends (the primary drivers of stock market growth) reached record highs and are forecast to increase further in 2025.
  • If anything, valuations (the price we pay for each dollar of profits in the businesses we’re investing in) got a little ahead of themselves toward the end of the year.  Valuations have never proven to be a reliable timing tool – any more than anything else has – so we continue to encourage clients to just keep on keeping on with their plan.
  • Inflation has not gone away and doesn’t seem likely to any time soon, despite the Federal Reserve’s efforts.
  • Our national debt and unfunded liabilities continue to be appallingly high yet the consumer is (perhaps surprisingly) in very good shape.  The household debt service ratio (how much of the average American household’s paycheck goes toward debt payments), at 11.3% in the fourth quarter of 2024, is near 40-year lows according to the JPMorgan Guide to the Markets.
  • The broad stock market isn’t likely to go on indefinitely compounding at almost 16% per year like it has been since the March 2009 Global Financial Crisis lows.  Nor do we need it to.  In our long-term plans, we always assume stock market returns below their historical averages of roughly 10%.

HOUSEKEEPING ITEMS

  • Our team continues to improve.  Bryan Matson passed the first level of the Chartered Financial Analyst (CFA) designation course of study.  That designation is the gold standard for financial advisors.  Despite the credential having been available since 1963 there are only 200,000 charter holders in the world today.  Each of the three required exams has only about a 40% pass rate and Bryan passed his first level on the first attempt.  Many of you have met him already and almost all of you have already seen some of his work in one way or another.  We’re excited to see him taking on more and more responsibility in the firm.
  • On January 2, we closed on the purchase of an office building in downtown Boise that we hope to move into later this Spring.  We are working through the renovation process at this point and are looking forward to being able to introduce you to the new Tumwater World Headquarters soon!

We wish you a healthy, happy, and prosperous 2025.  Thank you for being our clients.  It is a privilege to serve you!