New Year, New Strategy

It's that time again. A new year calls for an evaluation of your current investment strategy and the resolve to make the necessary changes. Before the end of 2022, I sold some stocks that have been dead money for some time and also sold some holdings that have performed well but didn't meet my expectations. The result was to raise cash while cleaning-up my portfolio. My winners roughly equaled my losers so as to not cause a large increase in capital gain tax for the year. I now have some dry powder to take advandage of opportunities in 2023. So what am I looking at? First, some large cap tech companies have suddenly become reasonably priced relative to their growth. It may be a little early but I would rather be early to the party than miss out entirely. I couldn't help but to nibble on Amazon recently. Since I bought it the price has continued to go down. I like the stock so I will add to my holding when it bottoms. Some of the money I raised will find its way into more fixed income like US Treasury I bonds which are indexed to inflation. They are currently paying 6.89% until April when they will reset based on the inflation rate. An investor is only allowed to buy $10k per year and you must hold it for at least 1yr. If you buy the I bond in January, you will earn the current rate for 6 months before it resets to the new rate of inflation. I expect inflation to remain stubborn, so this is my first buy for 2023. After that, I will add to my portfolio of CD's as interest rates rise. I don't expect rates to rise nearly as much as they did in 2022 so there is not a lot of incentive to wait for long before buying more. A search on my broker's website shows CD yields and maturities. As before, I like the 2yr maturity because it pays best for the risk. Many economists agree that we will enter a recession this year or next, I personally don't know so I have to prepare for the possibility of one. This is why I raised cash by selling stocks and have increased my fixed income holdings. If a recession does happen, stocks will probably correct because of lower corporate earnings. That would be a great time to add to your stocks at deep discounted prices. It looks to me that some industries are already trading at deep discounts. Home builders are trading at valuations in the low single digits as are some industrials like metals miners. I recently bought some Cleveland Cliffs (an iron ore miner) because it is just too cheap. I also like gold miners because many central banks are adding to their gold reserves and traditionally gold is a hedge against inflation. I have lived through many recessions, while it's no fun watching your stocks go down in value, it's also an opportunity to buy some great companies at a discount. It's also reassuring to know that you have safe and sound investments producing income during a downturn in the market. Every recession has a beginning and an end. You won't know your in one for several months after it starts and you won't know it's over until months later. The best way to prepare for one is to have cash available for living expenses and investment opportunities while having a stream of income from safe investments.