It’s episode 108, the last episode of the year. And let’s face it, everything’s interesting. Into the end of the year. Markets are extremely volatile. They’re not letting up. We have the most volatility since 2008. Are we going to recession next year? The debate continues as Labor continues to be strong. The Fed keeps talking tough when it comes to Fed policy.
The big question is what are earnings going to look like next year? We’re going to about positioning your portfolio for the new year ahead. On the tipping point today, we’re going to talk about what financial products would you want in your stocking this Christmas and what financial products you definitely want to do without.
This Year Has Been Brutal
We’re seeing the kind of market action we saw during one of the worst years ever in the history of stock markets. 87% of the trading days this year, the markets moved more than 1% in every trading session. The last time we saw that was almost over 12 years ago, during 2008, the financial crisis. Click To Tweet
With a diversified portfolio, maybe you’re down a little over 10% for the year, 12, 13%. That’s a stock market correction. It’s not like back in the great financial crisis when you saw portfolios down 30, 40 some cases 60%.
Some good signs under the bad news
- The price of gas has come down substantially
- Bond yields are starting to come down
- Inflation is coming down
The Fed’s having a dramatic impact on the housing market
New housing has slowed down dramatically. Interest rates are rising, new home sales are down 7 months in a row. The fed is having a dramatic impact on the housing market.
Layoffs are happening, but productivity should go up
Companies are starting to lay people off, especially in technology. But, the pool of eligible employees has been thin over the last couple of years. And they’re actually starting to think that as they lay off some of these folks that they’re laying off the least productive employees and that productivity will actually go up.
Corporations are very quick to cut overhead, cut expenses, increase the bottom line, and keep productivity going.
We saw that with FedEx earnings this week. They cut another billion dollars unexpectedly and the stock went higher. These CEOs and CFOs, they’re great financial engineers. They understand how to rewrite their business very quickly and they’re able to basically beat on expectations.
Slower growth next year
I think that’s what you’re going to see next year. We’ve already revised to a world of slower growth. We know that’s going to happen. It’s not a surprise. But the question is, are the analysts and the strategists going to overshoot on their projections on the downside? That’s the game that CEOs love to play – downplay their expectations and then they would beat, of course, the expectations that they set every quarter. Next year you’ll likely see surprises in the positive.
China is going to come back online
China is the second-largest economy in the world. They’re going to consume a lot of energy next year. A lot of automobiles, and goods. They’re going to go on vacation. That’s going to benefit the global economy. And nobody’s talking about that.
Global GDP at an all-time record high
- China is going to grow by 4.5% next year. Everyone benefits from that. If you’re FedEx, you benefit from that because then they do trade with China, they’re going to do deliveries in China. That’s volume that they’re going to get back.
- Nike, they are below expectations this past week. They’re going to sell more shoes in China as their economy picks up. Every single company around the world, globally that has a multinational footprint benefits.
- If you’re in Germany, you’re going to sell more cars in China. So it’s really about the global economy and it’s huge.
- It’s a cheap buy. Their P/E ratios are low, their dividend yields are high relative to the U.S.
Let’s look at history
If you look over the last 100 years, 75, almost 76% of those years were positive.You've never in history had back-to-back consecutive years where a balanced portfolio of stocks and bonds was down two years in a row. Click To Tweet
So you can’t say volatility is getting to me now and can’t take it anymore and move to the sidelines. Stay the course, rebalance your portfolio, and stick to the strategy. Let’s face it, 2022 is a stinker. Let’s say 2023 I think might be a winner.
The Tipping Point: Financial Stocking Stuffers
Payne Point #1
One of the Worst Financial Stocking Stuffers: An Annuity
There are billions of dollars going into annuities every year.
You have very low-cost annuities, you have high-cost annuities.
And chances are if it was sold to you by an annuity salesperson you got one of the high-cost annuities and it’s really difficult for you to get a positive return on that over time.
Look at the internal costs. If they’re selling their annuities, you’re paying another 2% in management fees. And then maybe a mortality expense, another 0.25%, and it all adds up.
Huge fees over the life of your investment portfolio that’s going to some financial company and not in your pocket that you can live off of. We’re talking big numbers in 10 years, 20 years.
It’s taxable income. You’ve already paid tax on the money you worked hard to earn, now you’re drawing it out and you have to pay tax again. I think that’s something that annuity salesmen don’t do a good job of explaining that you’re taking dollars that have already been taxed, putting it into an investment where it’s going to grow, maybe not at all, or slowly. And when you withdraw it, you’re going to be paying tax again.
Payne Point #2
A Disappointment in Your Financial Stocking: Tesla Stock
Five years ago it would have been a good stocking stuffer. But in 2022 the stock is down 70% for the year. However, It still trades relatively high in terms of valuation.
No longer the dominant company making EVs: The hottest thing of the last 10 years will have trouble repeating that success going forward due to creative destruction. Others like Porsche, Mercedes, Toyota, GM, and Ford are all coming out with their own electric vehicles.
It’s very expensive: The stock trades at about 30 times forward earnings while other companies’ P/Es are in the single digits.
Payne Point #3
A Financial Stocking filled with only the S&P 500 Index: Lack of Diversification
The Index is Dominated by the Top 5 or 10 Growth Stocks: Over 40% of the index is capitalization-weighted in technology, communication services, and consumer discretionary — mega-cap stocks that aren’t doing well right now.
Don’t Bet the House: The S&P 500 might not be the best place to be in the next decade like it was the last decade.
Why Limit Yourself? The total global stock market has 10,000 companies you can invest in.
Payne Point #4
A Great Stocking Stuffer: Tax-Free Bonds
Municipal Bonds Are Among the Safest Investments: Bonds are loans where you can be confident you’ll be paid back with interest. Unlike with family and friends.
Tax Optimization: For investors in high-tax brackets, municipal bonds offer tax advantages.