The Phoenix, a Greek mythical character, is considered an immortal bird that rises from the ashes of its predecessor. Of course, it is a myth, but the image of one rising from the ashes to get a new lease on life is powerful. We all want a second shot or do-over, especially with investing.
It has been a challenging year as most asset classes have traded in negative territory, there have been few places to hide, and diversification has not worked. Stocks and bonds reacted negatively to rising interest rates as the Federal Reserve tried to control inflation, and the rate increase was too much to bear for investors.
Are you ready to rise from your investment ashes? Here are a few suggestions to help you soar to new heights.
- Complete a financial plan. Your plan will help guide your future and quantify your goals, giving you a path to follow. More importantly, it validates your success and can bring you financial peace. Our clients with financial plans appeared more relaxed and better prepared to handle the market’s turbulence this year than those without one.
- Rebalance your account. If you did not make any changes to your investment portfolio this year, it is probably out of whack from your original allocation. As a result, you may enter 2023 positioned incorrectly, either too conservative or aggressive. Rebalancing your portfolio realigns it to the proper risk level and tolerance. January is a good time to rebalance because all your 2022 dividends and capital gains will have been credited to your account.
- Review your holdings. Do you have the correct investments for the new year? Will your current portfolio allow you to reach your goals? Use the final few weeks of the year to examine your holdings.
- Adjust your goals. Is it time to review your goals like spending, retirement date, college funding, or major purchase? Use the coming year to set new goals or update old ones.
- Buy stocks. The S&P 500 is down 16% for the year, and the last time it had two negative years in a row occurred more than twenty years ago, and since 1941, it only happened twice, and the average gain following a negative year was 25.3%.
- Buy bonds. Bonds are producing income again after a long hiatus. It’s now possible to buy bonds yielding 3%, 4%, 5%, or more. The one-month US Treasury Bill yield soared 7,720% this year, rising from 0.05% to 3.91%. Will it rise another 7,700% next year? Doubtful. If it did, the yield would increase to more than 300%!
I know it was a tough year, but markets always rebound. The carnage in stocks and bonds can create opportunities for next year, so use the market’s decline to strengthen your portfolio.
In order to rise from its own ashes, a phoenix first must burn. ~ Octavia Butler
December 5, 2022
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.
 Dimensional 2022 Matrix Book – 1941 to 2021