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You gotta know what it is coming…then wait. Then, you have to know when to start buying. I’ve waited to be at the front end of a market cycle like this all my life! It is exciting, so don’t let it get you down…JLS
There’s another stage of the economy just getting started and this one is easier to control. I call this the know-when-to-fold-em-cycle and this is about getting through the shift from 0% interest rates to a more normal 3% - 4%.
This stage of rising interest rates will be tumultuous: stocks don’t like it when costs and company profits change. Think of this stage as the Old Bull Market (OBM): it lasted a decade and was about growing your assets. Last summer, though, the OBM began making way for the New Bull Market (NBM), which will be about protecting those gains. Enter stage left, the NBM, where we will work about how to protect your hard-won gains of the last years.
While this might seem to be for those of you who are retired…those of you are not yet 65-ish…need to take some notes and write yourself a letter that you open on the day you file for Medicare. The things that you deal with today will be more sobering when you decide to walk away from a paycheck. These are the things we will take lots of planning, that you and I, will work on:
• Paying for healthcare
• Outliving your money
• Falling markets
• Unexpected big bills
• Remaining independent (with a healthy brain and body)
😊 Why does this matter to you? In the OBM, you grew your assets for unknown future costs. But in the NBM the costs are increasingly known, and we need to create solutions that have to work out. And you know...no matter how old you are today; you probably don't like seeing your savings decline because of some news event you don’t even care about.
Over the next week, I’ll finish sending out my Totum Risk Tolerance Questionnaires out, as that is the first step in knowing how much risk you can take. If you get an email from me, with your Totum Test, please complete it as soon as possible so we can work on getting to the other side of rising rates.
As the Fed looks to raise interest rates, funds most sensitive to interest rate changes have been hit hardest. Every major category of bond funds--with exception of funds that invest in bank loans--has started 2022 with losses, and in many cases, are extending declines posted last year. THIS is why we’ve kept your cash levels higher than normal…being in cash meant you didn’t make anything, but you didn’t lose anything either. Sometimes not losing beats making just a little!
😊 Why does this matter to you? With inflation rising and the Federal Reserve signaling that a series of interest-rate increases are on the way, shorter-duration bond funds like FLOT and SCHO are doing better because they are less sensitive to the rise in rates. Then there is the singularly unique fund, Zeo Short Duration Income Fund…which is the fixed income version of SOGEN (now called First Eagle), a fund that is loved to this day by many clients. This is what the Skye Rising Rate Capsule Portfolio is all about.
Funds that normally provide some level of cushion against rising rates--such as short-term bond funds and corporate bonds and high-yield bond funds--are also in the red.
Bonds can be surprisingly volatile, so the reality is that some of the decline in your portfolio will be from bonds you currently own. We will be adding to your bond holdings, however, so will be dollar cost averaging and buying higher yields. By the time we are through this, we will be in a very good position, income-wise.
SAVE THE DATE! Our next client meeting is coming up on February 22nd at 4pm Central.