February 2023 Market Update – 2023 Opportunities

Can you tell me that in plain English?

I’m sure you’ve heard or even said that many times.

Years ago I had to have a knee surgery after a car accident. I remember reading the description of my knee surgery, and it was literally two long lines of huge, medical terms. I thought, why not just say you’re fixing my kneecap?

In the medical field, there’s a lot of medical jargon, the same is true in the financial field.

If you were on or listen to our last Power Hour, you may have thought, “Can you tell me that in plain English?”

We had our portfolio management team portfolio management team on and they dove into more technical details  surrounding what happened in 2022 and what they’re looking at in 2023.

It’s okay if you don’t understand all that or if you don’t want to understand it all, but it is important you know our team does and we are managing accordingly, vs giving you the cliché answers like, “You’re in it for the log haul” or “It’s just a paper loss.” In every market, there’s different risk management strategies that you can utilize, which we do.

Now, let’s review in plain English.

Last year we saw the largest drop on record for the 60/40 portfolio, (60% stocks, 40% bonds) We’ve been talking about this for a few weeks now. The simple answer of why was because of the feds.

Earnings were great among many companies, yet, we still had a bear market. One of the main reasons was the rise in interest rates. It affected the valuations of stocks as well as caused a 15-year reset in bonds, which meant double digits losses in both the stock market and bonds in 2022.

In any type of market cycle, there’s always risk management tools to use. Last year we talked about this in our Investment Strategies Power Hour. We also talked about how we were moving into more defensive type stocks due to market and economic conditions. By utilizing those strategies, our portfolios on average participated in 75% of the overall market downturn in 2022. Meaning our lost 25% less than most of the benchmarks.

The Fed has two mandates, keep everybody employed and keep inflation at a minimum. You be the judge on how they’re doing…

They have stated that there will be more interest rate increases this year, but not nearly as much as last year. They’re saying that inflation cooling down, again you be the judge.

What is yet to be determined is the lagging effects of inflation and how that’s going to affect the earnings of companies, our team is going to be watching this very closely.

With the rise of interest rates, there was also some great opportunities created both in the bond world and in green money.

With bonds, first note that all we are talking about applies to individual bonds, bond funds have a hard time participating in some of these opportunities. (Watching Investing Secrets – Bonds to learn more)

 There are some great opportunities in municipal bonds, even some corporate bonds. In the municipal bonds, where you can make 4% to 6% state income tax-free and also have potential to see 15% to 30% increase in the values of bonds as well.

Our whitepaper of the month talks about fixed indexed annuities as an asset class. (be sure to download your copy here). With an FIA, you capture a portion of the gains of any market (aka the index) in exchange for zero on the downside.

Due to low interest rates for years, it’s been hard to average more than about 3% to 5% in FIAs. However, the rise of interest rates means better return potential in FIAs which are not looking at a 5% to 7% per year average.

You could make up to 10% 15% in a good year inside an FIA, but on a bad year, you make zero, but you don’t lose anything. Everyone that had an indexed annuities as last year are extremely happy, because while they didn’t make much or anything, they didn’t lose anything either.

There are still some questions to be answered. One of the biggest questions is with the political changes and how they will handle the debt ceiling. Dems will be trying to raise the debt ceiling and republicans will be more opposed. History has shown this to cause havoc in the stock market.

We are probably not done with market volatility.  There’s a lot of things still going on under the scenes that it might take a little time to play out. I believe in the end, it’s going to be good, but  there could still be some rocky times ahead.

With that said, neither you or I can control that what happens with the market, but we can control your accounts. We can control is protecting your accounts  by utilizing different risk management strategies such as avoiding areas of risk including small cap cynical stocks this year.

We want to be more in the defensive stocks, such as healthcare, consumer staples, things like that, and have other risk management tools in place.

 If your accounts are mutual funds, chances are, you probably aren’t 100% sure what you’re invested in. Again, you might be thinking, “I need this in plain English.”

If that’s the case, we’re happy to run a report for you and show you the breakdown what’s actually in those mutual funds and where you’re sitting. We recently did this for another couple who discovered they were actually overweight in all the areas of risk right now in underweighted in all the areas of opportunity, the exact opposite of where they needed to be. This often happens in those pooled strategies such as mutual funds as they have to manage their prospectus. (you learn more by watching our Investing Secrets – Mutual Funds)

If you’re not sure what you have, if you want to know in plain English what your risk is, and how you are positioned, make sure you give us a call. Our job is to help you ensure that no matter what happens, you and your retirement remain protected.