Strategy Update – Nov 2022

Important Strategy Update
We have been completely out of stocks and bonds for about half a year and it has served us very well in protecting principal which I view as my primary responsibility.

Inflation
Inflation is still out of control, running over 8%, and while the economy is starting to slow somewhat, the Federal Reserve will need to keep increasing rates for at least a few months.

Election
As predicted, the House appears to be going to the Republicans, though we won’t know for sure for awhile and the Senate to the Democrats. Generally, the stock market has done well when it is divided.

Income Investments
I think you will see money market rates, which are now at about 3%, get as high as 5% or 6% this next year. The 3-month Treasury bill, now at 4.2%, I think will continue to be about 1% – 1.25% above the money market rate, which means you could see it as high as 7% in 2023.

Because bonds will almost surely continue to lose money for the next few months, for now, any money that we would normally allocate to bonds needs to be either in money market, the 3-month Treasury bill or a real estate or cell tower investment for those who accounts are large enough to qualify.

When you can get 3% to 4% now without the risk of principal loss it makes no sense at all to be in bonds so in your accounts, you will see me purchase the best paying money market fund I can find and for more conservative clients, some money also in a 3-month Treasury bill to earn a little more money
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Stocks
On stocks, I think we can start to carefully ease back in here, the seasonally best time of year for stocks, though I intend to keep stocks on a very short leash. I have just bought positions of 15% – 30% in very conservative stock funds in most accounts and we will see how that goes before buying more.

401(k) Models
In the 401(k)s that I manage, any portion of each model required to be in income investments is either in money market or a stable value fund in order to protect principal and keep relative performance high. The stock funds in the models are mostly in large cap value funds and have been on average significantly outperforming the overall stock market. Past performance is no indication of future returns.

Miscellaneous
I will be reviewing taxable accounts shortly to see if there are any losses we can use to offset capital gains not yet realized. This is in order to keep your taxes down.
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I will also be processing required minimum distributions on IRAs for clients over 70.

If you have any questions or concerns, please be sure you talk to me. Thank you.

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