Helpful miscellaneous articles
regarding our retirement plan and planning.
Like you, I review my retirement nestegg and plan from time to
time. Recently, I went though some continued
education for some credentials I maintain and it occurred to me that we all
could use a review about these issues.
So with your help, we will share and post articles and info that may be
helpful and of interest to many of you in this section.
Top 9 Investing Trends For 2023
What a difference a year makes.
At
the beginning of 2022, prices were spiking higher in the U.S. thanks to
pandemic supply chain breakdowns and consumer bank accounts stuffed with
cash. Remote work seemed here to stay and unemployment was near all-time
lows. For many, there was a real sense that the pandemic economic crisis was
behind us.
Not
every observer was so sanguine, however, and it didn’t take long for runaway
inflation to become a major headache for markets and regular Americans.
After some hesitation (remember transient inflation) the Federal Reserve
pledged to crush rising prices by hiking interest rates. The stock market
tanked, taking bonds along for the ride, making it a miserable year for
investors.
With 2022 drawing to a close, the S&P 500 has clawed its way
out of bear market territory but remains down
17% as of this writing. As we look ahead to 2023, here are nine investing
trends that can help parse the cautionary tales from the opportunities.
1. America Remains an Inflation Nation
Inflation
was the economic glitter of 2022—it stuck to everything. From the gas pump to
the grocery store to your 401(k), investors have higher costs and less valuable
dollars to invest in the future.
The big question for 2023 is whether inflation will drop toward
the Fed’s 2% target rate. Many experts suggest that’s unlikely, although it’s
worth noting that the Fed’s six 2022 rate hikes will take a while to
work their way through the economy.
Morningstar predicts that the Fed will ease monetary policy and
lower interest rates to roughly 3% by the end of 2023. If that happens, it
won’t help the inflation fight. That suggests that Treasury Inflation Protected
Securities (TIPS) and I bonds should remain popular
inflation-fighting investments.
2. The Bear Market Could Stick Around
The Covid-19 stock market rocketship crashed and burned. June
2022 ushered in the second bear market since 2020, sending investors
scrambling for cover.
While
stocks have officially emerged from the bear market in the second half of 2022,
stock markets remain down by double-digits.
Ordinarily,
bonds would take the edge off a bear market. However, aggressive interest rate
hikes have bond yields falling along with stock prices. In the third quarter of
2022, the venerable 60/40 portfolio suffered greater losses than its
stocks-only counterpart, causing questions about whether the O.G. portfolio
needs to go.
Improving investor sentiment will likely be tied to easing inflation,
so the year ahead could prove tricky for traditional asset allocation models.
While
putting a “buy low” mantra into heavy rotation on your morning meditation
playlist is never a bad idea, 2023 may prove that buy-and-hold investors need
more than equities and fixed income to hedge against unpredictable markets.
3. Consider Alternative Investments
Speaking of broader diversification, 2023 holds promise for alternative investments finally earning a
place in everyday investor portfolios.
The portfolio for 2023—no matter your net worth, risk tolerance,
or time horizon—should include an increased allocation to alternatives. With
their low correlation to traditional asset classes like stocks and bonds,
alternatives could blunt inflation- and recession-induced volatility and buoy
returns more than dividend stocks alone.
Previously reserved for accredited investors and seasoned
traders, everyday investors can easily access alternative asset strategies like commodities and managed futures through a
decent selection of low-cost exchange-traded funds (ETFs) and mutual funds.
While
expense ratios trend higher than the average fund, the performance of alternative
assets may outweigh the higher costs.
4. Savings Bonds Are Still Sexy
If there’s a silver lining to the inflationary cloud, it’s the
newfound popularity of savings bonds—specifically Series I savings bonds. In April 2022, the I
bond rate jumped to a historic high of 9.62%, contrasting the S&P’s
year-to-date 15% decline.
Investors
eager to lock in that phenomenal rate bought $979 million in I bonds on Friday,
Oct. 28—the last purchase day before the semiannual rate reset—and crashed the
Treasury Direct website. You’d think the U.S. Treasury was selling Taylor Swift
concert tickets.
For
those seeking alpha for their extra cash, I bonds at the lower (yet still
phenomenal) 6.89% rate are available through April 30, 2023. While illiquid for
one year after purchase, it’s tough to argue with a guaranteed rate of return
backed by the full faith of Uncle Sam.
5. Watch Out for Layoffs
The
hashtag of the year on social media could be #layoff. Since mid-November, tens
of thousands of employees have been laid off from tech behemoths like Meta,
Amazon, Lyft and Twitter.
While
boldface tech names have seen very high-profile waves of labor force
reductions, other industries have seen their own losses. Real estate startups
like Better, Redfin and Opendoor have slashed headcounts as rising rates and
home prices dried-up mortgage applications, closed sales and corporate
revenues.
As
cash-strapped public companies try to shore up their balance sheets ahead of a
potential recession, the year ahead could see the undoing of the historically
strong U.S. labor market. While experts predict that new college grads won’t be
at a loss for job offers, entry-level positions have less impact on corporate
bottom lines.
That
mid-career—especially in tech-centric specialties—could weigh on unemployment
figures. Companies seeking to whittle payroll may pursue leaner staffing
protocols, leaving plenty of talent on the sidelines to appease shareholders.
6. Can Crypto Recover?
It
is pretty easy to argue that 2023 has to be a better year for crypto than 2022
since it could hardly be worse.
Multiple
stablecoins slipped their pegs in 2022—including TerraUSD and Tether, fueling a
midyear crypto
crash that
wiped out hundreds of billions in value. Crypto exchanges, meanwhile, were hobbled by
growing pains and layoffs (Coinbase)—not to mention the sudden implosions of
FTX.
Moving
into 2023, look for cryptocurrency businesses to woo investors with stories of
cash reserves instead of trendy coins and celebrity endorsements. And look for
big developments in cryptocurrency regulation from Washington, D.C.
The Fed launched its 12-week central bank digital currency (CBDC) proof-of-concept
project in mid-November, and legislators remain excited to advance crypto
regulation legislation.
Unfortunately,
many blockchain conversations will likely be colored by the debacle at FTX
instead of the technology’s long-term, untapped potential.
7. New Interest in Renewables
The landmark $1.2 trillion infrastructure bill of 2021 and the Inflation Reduction Act of 2022 make
trillions of federal investments available for renewable energy projects.
While supply chain issues stymied clean energy developments from
electric vehicles (EVs) to solar panels over the last two years,
2023 could be a very good year for renewables.
With
battery storage and EV adoption inextricably intertwined, BDO Global predicts a
banner year for renewable energy storage systems. Increased competition in the
EV market from newcomers like Rivian, Lucid, Ford and Chevy could put mainstays
like Toyota and Tesla on their heels.
And
natural gas shortages stemming from European Union conflicts have increased
policy momentum for clean and renewable sources.
8. Hybrid Robo-Advisors May Have a Moment
Recent data from Parameter Insights show that investors exited
self-directed investment tools like robo-advisors and brokerage accounts at a
staggering pace in 2022. Theories on the exodus abound, but two lead the
charge: Wealthier investors may be flocking to traditional financial advisors,
and DIYers may be content to wait out a market recovery with cash in hand.
No
matter the reason, hybrid robo-advisors—those that offer algorithm-driven
investing plus access to traditional advisors—may be teed up for a lot of
interest in 2023.
With consumers demanding more value for their money during
inflationary times, the low-cost/expert advice behind hybrid robos hits the
zeitgeist. By offering a combination of services like automatic rebalancing and tax-loss harvesting with
financial advisor access, and at a fee typically lower than traditional
advisors—
Price-sensitive
economies make investors more value-driven than ever, which positions hybrid
robos as the best of both worlds for investors eager for guidance but anxious
about costs.
9. Goodbye, TD Ameritrade
When was the last time you shopped around for a new online
broker? If you’re a TD Ameritrade client, 2023 might be just
the right time to consider your options.
Charles
Schwab acquired TD Ameritrade in 2019, and until recently both platforms
coexisted side-by-side. That will change in 2023, and TD clients are being notified
their accounts will be moved to Schwab platform starting in January 2023.
“We’re
nearing the point where two great firms become one and TD Ameritrade clients
become Schwab clients,” said Jonathan Craig, head of investor services at
Charles Schwab.
According
to Craig’s note, Schwab will be taking its time moving accounts, and customers
should get three months notice. The moves will take place over a weekend.
Check out our review of Charles Schwab to learn more
about their platform. If you’re a TD client and are satisfied with the Schawb
approach, all you need to do is wait for your notice.
(As with any of these informative articles,
anyone who needs someone to talk to about
this
very subject contact me and I can direct you to a knowledgeable advisor).
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