Investment News: What You Need to Know

We’ve been through some turbulent times recently. From the COVID-19 pandemic, which disrupted lives and markets, to the stock market highs of December 2021, followed by a sharp downturn. Add in election uncertainties, inflationary pressures in essential areas of life, aggressive interest rate hikes by the Federal Reserve, and ongoing geopolitical turmoil — it’s been a lot to digest. Now, the question is, where are we today in terms of investments?

Safe Money: Stability and Growth Potential

Let’s start with your safe money — the funds you’ve allocated to lower-risk vehicles like fixed accounts, bonds, and annuities. The advantage of safe money is simple: it doesn’t lose value in volatile markets. That’s the beauty of these conservative investments. Yes, the growth may not match the stock market over time, but it isn’t meant to. By taking on more risk in the market, you position yourself to reap potentially higher rewards over time. However, given the Federal Reserve’s interest rate hikes, we’re starting to see something interesting — safe money rates that are more competitive than they’ve been in decades.

For example: Indexed caps on new safe money accounts are now ranging between 9% and 12%. These numbers are hard to ignore and will be competitive over time. Even fixed annuities and CD rates have become extremely attractive as an option for conservative investors.

Understanding Risk Money: Portfolio Performance and Timing

Now, let’s talk about your risk money — the funds you have invested in the market. Every now and then, I like to provide an update on portfolio performance. While each investor may choose a different portfolio type (Conservative, Balanced, or Growth), the returns depend largely on your account’s activity. By “activity,” I mean factors like new deposits, additional contributions, and withdrawals — and crucially, the timing of these actions.

To illustrate: Imagine two clients who both invested $100,000 in the same portfolio on the same day. Client One took a withdrawal in December 2021 when the market was at its peak. Client Two made their withdrawal six months later, after the market had declined in 2022. Even though both withdrew the same amount, their portfolio values would differ significantly, due to the timing of their withdrawals. This demonstrates how action and timing can affect portfolio returns.

Portfolio Performance: A Snapshot

As of the end of 2021, right before the market correction, I’ve been tracking the performance of my three main portfolios. While all are still in negative territory, they are on the rebound. Here’s where they stand:

• Conservative Portfolio: -6%
• Balanced Portfolio: -5%
• Growth Portfolio: -7%

These returns are based on actual client portfolios that have not had additional deposits or withdrawals during the measured period (with fees included).

It’s worth noting that historically, the Conservative and Balanced portfolios should not have experienced as much of a hit during this correction. A well-allocated portfolio, especially one balanced with both stocks and bonds, is designed to provide stability during market downturns. Bonds, in particular, act as a safety net — typically not declining when stocks drop. However, 2022 was an outlier year in the market, as both stocks and bonds plunged simultaneously. This has only happened three times in the history of modern market tracking — in 1931, 1969, and 2022.

Staying the Course

When these rare market conditions occur, it’s important to remain patient and not overreact by changing your investment strategy. It doesn’t mean you should become more aggressive or overly conservative. Sometimes, anomalies occur that are outside of normal market patterns.

I’ve written before about the potential for volatility, particularly in off-term election years. When the market drops in January of such a year, it typically signals more volatility ahead — and 2022 was no exception. While no one can predict the future with certainty, history and market patterns often provide clues. When I provide insights on taking profits, pausing withdrawals, or adjusting your risk exposure, it’s important to take those recommendations into account. Timing matters, and while we don’t have a crystal ball, past trends can offer valuable guidance.

The Future Outlook: Safe Money is Attractive Again

As we move forward, the investment landscape presents several key opportunities. Safe money rates are at levels we haven’t seen in 25–30 years. CDs, Fixed Annuities, and Fixed Indexed Annuities are particularly appealing right now, especially for those who are seeking security with part of their portfolio.

Meanwhile, the stock market is gradually working its way back to historical highs. Once the S&P 500 reaches the 4800-point range, we’ll be close to those record levels again. Many analysts are predicting that the 5000-point mark could be reached in the coming months, depending on factors like interest rate adjustments and improvements in the supply chain.

The Federal Reserve has indicated that rate increases may be over, and there’s speculation that rates could begin to come down next year. This, combined with easing supply chain pressures, may help fuel further market growth.

Wrapping Up: Consider Your Next Steps

In conclusion, the current investment climate presents a mix of opportunities and risks. Safe money options are more attractive than they’ve been in decades, and for those of you looking to reduce exposure to market volatility, this could be a good time to take advantage. On the other hand, the market itself is on the road to recovery, and we could be approaching new highs soon.

Once the S&P 500 hits that 4800 to 5000 range, it might be worth considering adjusting your strategy — whether by locking in gains or shifting to a more conservative approach, especially if you were contemplating such changes during the recent downturn. As always, feel free to reach out if you want to discuss your portfolio or future steps.