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Congratulations! You, the 60/40 investor, get a raise in 2023!

Updated: Jan 13



We all know pay raises come with effort, discipline, and some perseverance. Employers, and companies don’t tend to give out massive raises to the worker who shows up late everyday, or calls in sick once a week. They tend to give them to the hard worker who puts in the overtime and has a great attitude. And for 2023, that hard worker is you! But before we discuss specifically your raise award, let’s have a quick review.

2022 was a year that brought many positives for lots of us personally, but many negatives for financial assets. Let’s take a look back at where this all started… I recall in 2020, and 2021 everywhere I went I was hearing conversations taking place about the stock market, cryptocurrencies, auto purchases, moving into new homes, and overall lots of optimism/excitement about assets in general. Then with the arrival of 2022, those conversations seemed to be far and few between.


The joy and ecstasy of talking about wins with assets had ceased, and conversations about these topics became less frequent. The conversations in 2022 shifted to recession, inflation, debt, limited money supply, and other new buzz words that were much less euphoric than those of 2020 and 2021.


2022 was a difficult year for almost all asset classes, and especially unique for the normally less volatile 60/40 portfolio. Stocks fell between 10-40 percent for major asset classes. Cryptocurrencies and other more speculative areas of the market fell substantially more, some over 90%! These things happen when there is too much euphoria in financial markets and the money supply grows too big. Money needs to find a home, and when there are not enough good places to land, the speculative areas can serve as the host. The less common part of the story however, is what occurred in the bond market. The typical story is…. money flocks to “safer assets” like bonds in these times of uncertainty. In 2022, this was not the case. In fact,The typical bond index was down almost as much as the S&P 500.

With this in mind, we must remind ourselves of the old adage “when others are greedy, be fearful, and when others are fearful, be greedy”.


As investors, this is where we get to take a look back with a broader perspective and start to shape our forward outlook. We know that these types of events will occur multiple times throughout our investing lives, and while they can feel especially painful when we are in retirement versus accumulation, they are all necessary. These ups and downs in prices and movements in our portfolios can cause disdain, but maintaining composure through them is key to our long-term success. Our discipline and long term investment philosophy during years like 2022 will provide the foundation for success during our retirement, and the building of wealth for generations.


For 2023, there are lots of opportunities on the horizon. The 60/40 stock and bond portfolios have long relied on the stock portion for the vast majority of the returns, and have leaned on the bond side for very modest income, as well as price stability. 2023 and beyond, we may see the 40 (the bond portion) pulling more weight in the portfolio. With higher interest rates, bond investors receive more income. Income is essential to a retiree’s portfolio for providing a steady paycheck. 1 year ago, a short-term bond, or money market was paying close to 1%, and more intermediate bonds in the 2% or so range. Today, we are seeing interest rates on high quality bonds closer to 4 and 5%.


For a 1-million-dollar portfolio, the 40% in bonds, or 400,000… collecting income at this higher interest rate is substantial. 400,000 at 1.5% is 6,000/year or 500/ month. At today’s rates of around 4%, the income is 16,000/ year or 1,333/,month. What a raise! Investors are now seeing substantially more income!


Sure, the case can be made that things are more expensive, and some areas certainly cost more than they did a few years ago…. However, the jump in bond interest income is equivalent to almost a 275% raise!


We are also seeing lots of signs of cooling inflation. Today the price of oil, gasoline, natural gas, copper, and corn are all about the same or lower than they were 1 year ago.

So, let's focus on the optimistic side of 2023…. With just one of the many positives including higher incomes on our bonds!


Cheers to a glass half full 2023….


-Bryan



Disclosure: Bridge The Gap Retirement Planners LLC (BTGRP) is an Investment Advisor registered with the States of CA/AZ. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy, or the completeness of, any description of securities, markets or developments mentioned. We may, from time to time, have a position in the securities mentioned and may execute transactions that may not be consistent with this communication's conclusions. Our current disclosure brochure, Form ADV Part 2, is available for your review upon request, and on our website, btgretirementplanners.com. This disclosure brochure, or a summary of material changes made, is also provided to our clients on an annual basis

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