Things are always uncertain.
One of our sayings at JourneyTree is, “If someone tells you what they think is definitely going to happen, run the other way.” There is a tendency in the financial industry to confidently predict that the economy will be strong or that stocks will do well. This is intended to keep people investing.
In reality, no one knows what’s going to happen, and the future from here looks more uncertain than it has at any time in the last 15 years.
The current trend is to predict that the Federal Reserve Bank will be able to engineer a “soft landing.” This means that, like Goldilocks, they will get things “just right.” They will raise interest rates at the right time and just the right amount to get inflation under control without causing a recession. This is certainly an appealing message but far from likely. In fact, eight out of the last nine times they have raised rates, the economy has had a recession.
So as prudent investors, we don’t want to be swayed by hopeful possibilities. We want to be prepared for the risks that could come along. Right now, those risks include stocks falling substantially as corporate earnings decline, and the chance that rates will need to go higher yet to rein in inflation, thus hurting the value of bonds.
JourneyTree’s Current Investment Strategy Is 4-Fold
#1: Stocks – Hold substantially less than normal and focus on the most attractive areas such as large value stocks, small company stocks (down almost 30% over the last two years), and dividend-paying companies.
#2: Cash – Hold substantially more cash than usual given yields approaching 5% coupled with very low levels of risk. Be prepared to move cash into stocks and bonds when they become more attractive.
#3: Bonds – Deploy a significant amount of assets in short- to medium-term bonds, especially Treasury bonds. They are currently yielding over 5% and are not taxed at the state level. Consider moving more money into longer-term bonds if rates give major signs of peaking to lock in higher rates for longer.
#4: Alternatives – Continue to diversify away from the risks of stocks and bonds by using alternative investments such as floating rate loans, private credit, and other strategies.
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