One Size Fits All?

A one size -fits -all concept almost never works for the consumer. This is especially true for investors. What is the right financial strategy for a retiree may not be appropiate for the younger person who is supporting a family and saving for an eventual retirement. Investments must be highly personalized and tailored to the goals and needs of each individual. For many years, financial planners have advocated for a 60/40 mix of stocks to bonds, which is basically a one-size-fits-all financial plan. Sometimes it works and sometimes, like now, it dosen't. The current market environment is a very tough one. We are on an upward trajectory for interest rates because of unusually high inflation which causes stocks to fall and bond yields to increase with declining bond prices. Bond prices and bond yields move in opposite directions. So what is an investor to do? The answer really depends on your personal situation in life. For the young family man, stocks may still be the best place to ride out this storm as long as he holds a healthy amount of emergency cash or liquid assets. Dividend stocks can still beat the return of even the longest dated Treasury Securities. The key for the younger crowd is that they have plenty of time to make-up for market losses incurred during a market downturn. There is nothing wrong with adjusting a retirement portfolio to lock in some gains and reposition into some safer investments like brokerage CD's or short dated Treasuries. I would avoid holding much in the local banks and credit unions because they will be the last to raise their rates on deposits but some of the first to raise rates on loans. For the soon to be retired and the already retired like me, I don't really have the long term perspective as the young working person. My personal strategy has been to deploy capital into the fixed income markets to generate income in retirement plans and taxable accounts. Treasurys and brokerage CDs are now paying yields not seen for several years which is interesting to me. Knowing that interest rates are going to continue up, I am only buying terms of 2 years or less. As rates climb, I will take advantage of the higher rate with additional purchases of higher duration. This is called laddering and takes advantage of the higher rates by locking-in the higher rates for longer and the shorter durations will mature and roll-over into higher rates at that time. I still have most of my stocks even though they are causing great pain now, however I believe most are great companies and will recover when this interest rate cycle reverses. My goal is to live long enough to see this happen. I also have bought my quota of US Tresuury ibonds which are indexed to inflation and are currently paying over 9.5% interest for the rest of this year. If you are adventureous and like scary roller coasters (I dont), there are some compelling stocks that could reward you in the next few years. The electric car industry is going to change how we comute in the future and is an unstoppable trend. Tesla has been beaten-up recently and trades at an attractive level now. EVs will create new demand for computer chips and raw materials for battery production. Lithium and copper are just two commodities which are increasing in damand and price. The shop from home is a trend that grew during the pandemic and will continue due to the convienience and price advantage. Companies in this space are also at attractive entry points. Finally, my thoughts on the market is that there is more pain for holders of equities. The Federal Reserve is intent on curbing inflation and will continue to aggressivly raise the overnight rate to combat high prices. The whole idea is to drain liquidity from the economy. I believe it will take over a year to achieve this goal and it will likely end in a recession. If the recession is not too steep and long lived, then we could return to a bull market in stocks and bonds due to a decreasing interest rate cycle. Changes in the political climate, ongoing military action, additional pandemics, shortages in labor and energy, and economic disasters could all change my forcast.