Many would argue, including ourselves, that the diversified portfolio never “died”, as many pundits have been pronouncing since the 2007-2009 financial crisis. Although, the rebuttal against diversification may have had its strongest case over the past decade-plus. With large mainstream United States based stocks topping the performance charts seemingly year after year, it became hard for investors to consider any other asset class. Bond interest rates were at all time lows across the globe, with major economies such as Germany and Japan even having negative interest rates, making investment in bonds less attractive. International stocks based in developed nations woefully underperformed their U.S. peers for most of the whole decade of the 2010s – chart below.
United State Stocks (purple) vs. International Stocks (blue) from 01.01.2010 to 12.31.2019
Looking forward, those prospects seem to have changed. Bond yields have risen dramatically, giving investors an opportunity to receive notable returns and interest payments on their bond portfolio. Investors in the United States 10 year Treasury Note can receive interest payment of 3.5% today in comparison to nearly 0.50% in July of 2020. International stocks also have favorable outlooks as many analysts update their forecasts to include stronger performance from these companies to compound on the recent rise in international markets since October. Markets Insider Schwab – 2023 Market Outlook
Diversification means you will always own something that is underperforming or that you don’t like. However, it also gives investors the best chance of investment success while going through different market cycles. Research Affiliates
News Out of Davos: Each year, business leaders and economists come together for the World Economic Forum in Davos, Switzerland. This year’s global topics include high inflation, high-interest rates used by central banks to combat inflation, and the threat of recession. WSJ A few other highlights from the meetings:
- U.S. officials met privately with allies and business leaders to discuss ongoing assistance to Ukraine CNBC
- London Heathrow Airport CEO predicts global travel won’t be back to normal until the end of the year WSJ
- Bank of France Governor believes Europe should avoid a recession this year despite uncertainty WSJ
- Moderna CEO talks with China to supply COVID vaccines Reuters
RSWA Quarterly Webinar, Fritz Meyer on January 26th at 4:30 PM: Join us next week as we will be hosting economist and market strategist Fritz Meyer to kick off the year. Fritz will give a recap of what’s been happening in the markets with an eye toward what to expect for 2023. Check your inbox for a registration link.
Financial Planning/Investment Strategy Corner:
529 College Savings Accounts – New Provisions Enhance Attractiveness: Last week, we spotlighted the new SECURE Act 2.0, the latest bill out of Washington making broad changes to retirement account rules. This week, we wanted to focus on one provision allowing unused 529 funds to be transferred to Roth IRAs. 529 plans have long been a great way for parents to save and prepare for the exorbitant cost of sending a kid to college. They have no income limit, high contribution limits, no age restrictions, investments grow tax-free if used for a qualified college expense, and many states even offer tax deductions or credits for contributing. savingforcollege.com
One question many savers ask is, “What happens if my kid doesn’t go to college or we don’t use all of the funds?” Traditionally, there was some flexibility with the option to change the beneficiary of the account to another family member. With the new bill, parents can now transfer unused funds from the 529 and fund a Roth IRA in the beneficiary's name, providing an opportunity for parents to help their children kick-start their retirement savings. In addition, as the law currently stands, a change in beneficiary would not affect the eligibility of the transfers. Meaning, parents could change the beneficiary to themselves and use the funds to add to their own Roth savings. Of course, there are some limitations and guidelines – the 529 account must be open for at least 15 years, contributions made within the past five years are ineligible, annual transfers are limited to the current year’s IRA contribution limit, and a lifetime limit of $35,000. Visit our blog for more information on 529s and the changes made in the SECURE Act 2.0. RSWA Blog – 529 Plans RSWA Blog – The SECURE Act 2.0 – What It Means for Savers and Retirees
Quick Hits:
- Survive the winter with these fun activities across New Hampshire - nhmagazine
- And what about Maine? visitMaine
- I just learned about Skijoring. It is definitely on my to-do list! (just spectating, of course)
- Tips for keeping your houseplants alive through winter (This one is for David and me, as we can’t seem to keep plants alive in our office) - Mainemag
- Elon Musk breaks Guinness World Record… for largest amount of money lost by one person. At $147 billion in current worth, I’m sure his financial projections still look good. npr
- “Where do you see yourself in 5 years?” is an impossible question to answer. Shankar Vedantam explains that it is hard to know what will make you happy in the future because you don’t know what your future self wants. Ted Talk – Shankar Vedantam
Social “Investments” Pay High Dividends: Being a wealth management firm, a great deal of our focus and conversation surround parts of retirement planning that we can quantify financially. There are many reasons for this – it is measurable, and a financially stable and favorable plan goes a long way in a happy, low-stress retirement. However, we know finances are far from the only thing that contributes to a “successful” retirement. Social interactions, hobbies, and passions play an immense role in one’s happiness throughout life and maybe even more so in retirement. As the WSJ article Your 401(k) Isn’t Enough: To Invest for Retirement, Build Friendships and Hobbies points out, a long-running Harvard study found that the quality of their relationships is the greatest predictor of longevity, health, and happiness later in life. Humans need purpose in life. For most of our adult life, that purpose is fulfilled by careers and children. In retirement, it is important to have friendships and interests to keep that meaning in life going.
The Riddle of Rest: I recently came across this piece contemplating what it really means to rest. The author argues that rest isn’t just what we traditionally think of – laying down, relaxing on the beach, etc. These are certainly restful activities (or inactivities?), but not all rest needs to come from keeping your mind or body still. The article defines rest as “when you’re not associating your self-worth with what you have to do next.” Rest can occur while keeping your mind active (reading a book or watching your favorite TV show or movie) or keeping your body active (working out, hiking, walking the dog). My takeaway: The next time my fiancé ridicules me for watching football for nine hours straight on a Sunday, I will let her know I am resting. 😊 More To That – The Riddle of Rest
Quote: “You're going to be a different person in 30 years' time, you should play an active role crafting the person you are going to become.” – Shankar Vedantam
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