2023 was an interesting year for the investment markets as U.S. stocks and bonds finished up for the year. This was in spite of a continuing war in Ukraine, Hamas attacking Israel, a regional U.S. banking crisis and, oh by the way, the Federal Reserve raised interest rates to a 22-year high. Either way, I’ll take it. The question now is, what’s next for investors? Better yet, how should investors allocate their nest egg in 2024?
As we look to the year ahead, here are three examples of how I am advising my clients:
1. Cash is not always king.
There is a record amount of cash on the sidelines, $6 trillion in money market assets, according to Reuters. If you’re in a money market waiting for the right time to invest in the stock market, good luck. In my experience, it never feels like the right time to invest. There is always something — “the market is too expensive,” “the market is not cheap enough,” “the market is going to sell off,” or “I’ll wait a little longer,” so on and so forth. Sitting in cash may feel good in the short term, but after inflation and taxes, what is the real yield on your money?
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Instead, if you have money earmarked for the long term, 2024 could be a good year for dollar cost averaging a portion of your savings into a diversified portfolio. Dollar cost averaging is investing a steady amount each month into a mutual fund or a diversified portfolio of stocks, bonds, real estate and commodities, for instance. The idea is to spread out the entry points, buying into different prices of the market rather than making one single investment.
I especially like dollar cost averaging in 2024 given the amount of uncertainty in the economy and the uncertainty around interest rates. Dollar cost averaging does not ensure a profit or protect against loss, but rather than put all my capital to work at once, I’d rather spread it around evenly and see how the year develops.
2. Think twice before you give up on the unloved.
I will sometimes see investors wanting to sell underperforming stocks and buy only what’s performing well — like loading up on a few high-charging tech stocks and bailing on everything else. But be careful with this approach. This is because the unloved sectors of the stock market might start to attract investors’ attention again.
For example, take utility stocks, which had a tough year last year — the S&P Utilities Sector Index finished down 10.9% for 2023 (Bloomberg). However, that could change in 2024 if we see a weakening of the economy. Utility stocks can be seen as a defensive sector, meaning households will continue to need energy and water in economic downturns.
The point is to be careful about extrapolating too much from last year’s returns, or, as we say in the business: The past is no guarantee of future results. (For more on this, see Callan’s Periodic Table of Investments, a great piece on how no investment style wins consistently over time.)
3. Be mindful of the mega-trends.
Mega-trends are big, overarching themes that can be drivers of growth in many different industries for the next decade. For example, artificial intelligence and sustainability might be the next mega-trends.
Mega-trends can yield tremendous value (or not) for investors. There may be a few high-flying stocks that get all the attention from these themes, but time will tell whether the returns are real or fleeting. My advice here is twofold:
- Own the forest and not the tree. If it makes sense for your investment portfolio, owning a basket of securities benefiting from these mega-trends may be a better option than trying to find the needle in the haystack.
- Don’t bet the farm. Have a core well-diversified portfolio and consider adding satellites or small allocations if warranted.
It will be interesting to see how things unfold this year, especially around the Federal Reserve and our presidential election. One can make a case for being bullish as well as bearish. But I think most investors will be best served to avoid the short-term noise and focus more on building a portfolio for long-term gains.
Though these three tips are a good start, I recommend a thorough and comprehensive portfolio review by an experienced professional who can help evaluate your risk tolerance, time horizon, tax situation, goals and spending patterns.
To schedule your complimentary 2024 investment portfolio review with the author, make an appointment with him here.
Michael Aloi, CFP is an independent financial advisor with 22 years of experience in helping clients achieve their financial goals. He works with clients throughout the United States. For more information, please visit www.michaelaloi.com.
Investment advisory and financial planning services are offered through Summit Financial LLC, an SEC Registered Investment Adviser, 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600 Fax. 973-285-3666.
This material is for your information and guidance and is not intended as legal or tax advice. Clients should make all decisions regarding the tax and legal implications of their investments and plans after consulting with their independent tax or legal advisers. Individual investor portfolios must be constructed based on the individual’s financial resources, investment goals, risk tolerance, investment time horizon, tax situation and other relevant factors. Past performance is not a guarantee of future results.
The views and opinions expressed in this article are solely those of the author and should not be attributed to Summit Financial LLC. Links to third-party websites are provided for your convenience and informational purposes only. Summit is not responsible for the information contained on third-party websites. The Summit financial planning design team admitted attorneys and/or CPAs, who act exclusively in a non-representative capacity with respect to Summit’s clients. Neither they nor Summit provide tax or legal advice to clients. Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state or local taxes.
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
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