SUMMARY
We believe that those who do not have core portfolio investments may be disadvantaged. See below the potential opportunities for portfolios in the current slowing economy.
- When T-bill rates and deposit rates are high, it is understandably tempting to do nothing or to wait until the stock market “inevitably declines” before entering. But looking out just one year, we believe that those who do not have core portfolio investments may be disadvantaged.
- Markets lead the economy and the introduction of generative AI is a reminder that innovation is itself unstoppable. Innovation and demographics explain why equity markets in the US have returned about 11% annually since the end of World War II.
- Now that markets are up, investors who are on the sidelines wonder if they have missed “it.” Of course, there is no perfect time to invest.
- Looking at the Fed’s current projections for inflation at the end of 2024, we see that their estimate is 2.6%. If we accept the Fed’s inflation projections, would you rather keep money in cash or own intermediate bonds? Money market funds at the end of 2024 are likely to yield closer to 2%. Extending the duration of fixed income portfolios should be seriously considered now that the debt ceiling issue is resolved.
- We suggest clients maintain their plans and investment decisions through market cycles. If you are starting a new Core Portfolio or are concerned about when to add more to your investment account, consider dollar cost averaging. But also understand that picking the “right month” to start is impossible. Once you establish an investment philosophy and asset allocation, get underway. The virtues of portfolio diversification and asset allocation can mitigate the risks of emotional decision making.
- Portfolios evolve. In this week’s CIO Bulletin, we list several potential opportunities for portfolios in a slowing economy. We also recommend reading our full Mid-Year Outlook 2023.
