Ever since inflation began its persistent climb two years ago investors have been nervous about the market and how it would react to rising interest rates and, presumably, falling corporate earnings. Indeed, we’ve been talking about an imminent recession for the past two years and many investors want to know how to position (or re-position) their portfolios to weather the storm.
This sentiment was never stronger than at the end of 2022, after a brutal year for both stocks and bonds. Many readers of this blog wondered if it made sense to abandon their sensible balanced portfolios and move to cash or short-term GICs to stop the bleeding and at least earn some interest.
My advice hasn’t wavered. We can’t time the market with any degree of reliability. Getting out while markets are falling might feel good, temporarily, but getting back in can be increasingly difficult. Historically, markets tend to rise quickly after a sharp decline. That’s why we shouldn’t change our investment approach due to current market conditions.
Similarly, earning 4-5% per year on a GIC may seem like a decent return, but when markets are up 6% in one month (see January) you might regret missing out.
So here we are, four months into 2023, with some economic indicators flashing warning signs while other metrics look to be back on trend. In the face of all this uncertainty, markets are…okay! Better than okay, really:
- A portfolio of 100% global equities represented by Vanguard’s VEQT is up 8.31% year-to-date.
- A growth portfolio of 80% equities and 20% bonds represented by Vanguard’s VGRO is up 7.49% year-to-date.
- A balanced portfolio of 60% equities and 40% bonds represented by Vanguard’s VBAL is up 6.62% year-to-date.
- A retirement income portfolio of 50% equities and 50% bonds represented by Vanguard’s VRIF is up 5.04% year-to-date.
- A conservative portfolio of 40% equities and 60% bonds represented by Vanguard’s VCNS is up 5.73% year-to-date.
Markets are extremely noisy in the short-term. But if you simply stopped checking your portfolio daily and zoomed out you might wonder what all the short-term fuss was even about.
This Week’s Recap:
I last posted about how to choose the right asset allocation ETF.
Since then I’ve been busy packing, moving, and unpacking as we get settled into our new home. It was a stressful few weeks (including a one-week period between house possessions carrying the biggest debt load of our lives), but we’re absolutely loving our new place.
I’ll write about our new mortgage decision in the coming weeks, but I’m glad to be rid of the previous mortgage debt and to start moving forward with our saving and investing goals for the rest of the year.
Promo of the Week:
American Express routinely has the most lucrative travel rewards offers on the market and the current promotions for their premium cards are strongly worth considering for travel hackers.
First up, the American Express Aeroplan Reserve Card where you can earn up to 120,000 Aeroplan points (that’s up to $2,400 in value).
Earn 50,000 Aeroplan points after spending $6,000 within the first 3 months. Plus, in the first 6 months, you can also earn 7,500 Aeroplan points for each monthly billing period in which you spend $2,000. That could add up to anther 45,000 Aeroplan points. Finally, you can also earn 25,000 Aeroplan points when you make a purchase between 14 and 17 months of Cardmembership – an incentive to keep the card beyond the one-year mark.
Next we have the American Express Platinum Card, where you can earn up to 90,000 Membership Rewards points when you charge $7,500 in purchases to your Card in the first three months. Membership Rewards can be transferred to Aeroplan on a 1:1 basis, so 90,000 points can be worth up to $1,800 in flight rewards.
Morningstar’s Christine Benz says flexibility pays when it comes to retirement spending. Agree 100%.
Millionaire Teacher Andrew Hallam says this is when you should worry about your portfolio’s returns.
More advice from Andrew Hallam – what will the stock market do next?:
“There are two reasons we can’t predict the market. One is based on economics. We simply cannot see the future.
The second is based on how human beings respond to economic news. In other words, even if a Nostradamus could, with pinpoint accuracy, provide data on future interest rates, GDP growth, employment figures, individual company profitability and government policies, we still couldn’t predict how stocks will perform.
That’s because economics don’t move the stock market. Human beings do.”
For fans of the show, Succession. Who owns Waystar? What are the Roys worth? WTF is going on? And other pointless questions, answered.
Rob Carrick answers a question I get a lot: This is how much you should plan to spend on dental and medical costs in retirement.
A good episode of the Rational Reminder podcast where Ben Felix takes a deep dive into covered calls and finds them to be a losing proposition:
Who will give you the best mortgage advice? Here’s why a mix of voices is your best bet.
Erica Alini on why soaring rents mean living with roommates can cost $1,000 or more per person (subs).
Robin Powell explains why we’ll likely see another Bernie Madoff in our lifetime.
Investment advisor Markus Muhs shares his thoughts on dividend investing as a strategy and offers some wise words for yield-hungry investors:
“Dividends are a happy side-effect of a well-diversified investment portfolio. They should never be the goal in and of itself.”
A Wealth of Common Sense blogger Ben Carlson looks at concentration in the stock market as the top 10 companies now make up nearly 30% of the S&P 500.
Finally, the brilliant Morgan Housel shares some incredible nuggets of wisdom in this recent post.
Have a great weekend, everyone!