In this month’s edition of “Money Matters,” Scott discusses the financial market performance of 2023 and looks at 2024 investment opportunities.

Money Matters: 2023 Market Recap & 2024 Financial Market Opportunities Transcript

0:00:00.0 CJ: Money Matters, a monthly feature intended to help us understand more about managing our finances. Scott Oeth is a certified financial planner and adjunct professor and works with many individuals and has taught retirement planning and wealth management strategies to hundreds of financial professionals. Scott joins us now by phone. Welcome, Scott.

0:00:21.8 Scott Oeth: Good morning, CJ.

0:00:22.7 CJ: Good morning to you. So, 2023 is in the rear-view mirror. What do we make of the year from an investment standpoint?

0:00:32.9 SO: Well, CJ, it was quite an interesting year. I think it's important to remember we stepped back just a little bit. 2022 was a really rough year for the markets. Soaring interest rates caused the bond markets to really crash, have their worst year in about 100 years, and stocks had a tough year as well. So, coming out of 2022, looking at what was at stake, many forecasts were predicting a recession and predicting poor market returns heading into 2023. But instead, hey, what happened? Patient, disciplined investors, those who, more or less said, "I'm going to set aside these forecasts and the doomsayers," and stayed invested, they were really rewarded with unexpectedly strong returns in particular, CJ, here at the end of the year, we, as I like to call it, we were treated to a Santa Claus rally. And broadly the markets had a really nice lift. This was the year where things were fairly concentrated, but the S&P 500 is a stock market index that you hear widely cited, and it finished the year up 26%.

0:01:38.2 CJ: Wow.

0:01:39.0 SO: So, we started the year with, yeah, poor forecast and doom and gloom, and instead had really a huge return. Other areas of the market were lower than that, but still really strong returns across the board, and I think it's important. First of all, a couple things. I always have to keep my compliance department happy, and put out a disclosure, CJ, and say this is just a general discussion. Anyone listening needs to do their own research and shouldn't take anything we say here as specific advice, but just a quick spin down memory lane. We started off the year with debt ceiling crisis and the Treasury Department and taking extraordinary measures. And that was in the headlines. That didn't sound good. Later in the year, Fitch, which is a financial rating agency, downgraded the US government's credit rating. That wasn't good early in the year. CJ, do you remember when we were hearing about banks failing?

0:02:30.3 CJ: Yeah.

0:02:30.5 SO: Valley Bank, Signature Bank failing, did not sound good. There were all types of concern about inflation that really dominated the headlines coming into the year. 2022, we'd been—had soaring cost of living, and one of the biggest stories is really that that rate of increase came way, way down for most people on most things that they were spending money on. So, that was a significant change, but that was a big worry heading into the year, was inflation, interest rates, mortgage rates are the highest they've been in two decades, really. And it cost a lot more to borrow money, and that was intentional to kind of put the brakes on the economy and try and slow down inflation. But you would think, "Wow, this is a headwind." Headwind for investors.

0:03:13.6 SO: All these companies that borrow money to finance their operations, it cost more, it cost more for individual investors. It's more exciting to just keep money in the bank and actually get an interest rate return on it now rather than investing. All types of headwinds in the market. We ended up with really strong returns. A lot of it, we probably touched on a time or two, CJ, with a lot of excitement around artificial intelligence and that drove... The buzzword for the year, I think, was the Magnificent Seven. A small cluster of technology stocks that are tied to artificial intelligence. Those are the same companies. A lot of them took an incredible beating in 2022, but they soared this year. Then later, the rest of the market really caught up.

0:03:54.2 CJ: The increase in interest rates. Did it help investors that have their money in more, what, conservative places?

0:04:03.1 SO: Well, I think it looks really good for more conservative investors right now, CJ. So if someone has that classic moderate type investment allocation or retiree mix where maybe they have something like 60% of their assets in stocks where they're owning shares of companies and the other 40% in bonds where they're lending money to companies and governments, that's a very time tested investment allocation that's worked well enough in up years to capture some handsome returns, but, usually, a large safety net in the down years. Not recommending this for anyone in particular, but just as an example. That type of investment allocation, now, CJ, with 40% bonds looks completely different than it did two years ago, and those investors can expect some really nice interest income coming in from the bond side of their portfolio. So, I think that's really good news. There was some pain getting there with that big reset in 2022, interest rates going up causing bonds to come down, but we're in a completely different environment now for. Well, to be called fixed income or bond investors, and I think in general that's a good thing.

0:05:10.6 CJ: All right. So, that's 2023. What do you foresee in your crystal ball for 2024? Do you have any thoughts or advice for investors when looking ahead?

0:05:20.1 SO: Yes. Well, CJ, believe it or not, Santa did not bring me that new crystal ball.

0:05:25.0 CJ: Darn.

0:05:25.3 SO: I got the stock returns I was hoping for, but yeah, crystal ball, still is cloudy and I and many others may have hypothesis backed by a lot of research, a lot of thought, a lot of numbers and data about how the new year will unfold. I'll admit I can't see clearly into the future in terms of how things are perfectly going to unfold. And I'll say this, neither can anyone else.

0:05:49.7 SO: So, you and I, CJ, a year ago I went back and looked. This time last year we were talking about the abysmal failure of market forecasters over the long haul to predict the near term. And there's a lot of smart people. It's not that they're not, and they're looking at a lot of evidence and they're building a case for how they think things are going to unfold. But one of my big tips, CJ, would be to say expect the unexpected. That was the case in 2023. That has been the case in so many other years for investors. I think from an emotional standpoint, as an investor, it makes sense to be a bit guarded and pessimistic and not get overly hopeful about how this year is going to unfold.

0:06:30.4 SO: There's all types of things that could come to be that might have it be a poor market year. But what we need to remember is, over the long haul, the optimists have won. So short-term pessimist, long-term optimist. Stay in the game. If people paid too much attention to forecasts at the beginning of this year, they may have missed out on that 26% return because things looked bad. Inflation was still high. Interest rates were soaring. Our debt was being downgraded. Things didn't look great. And look what happened.

0:07:00.4 SO: And here's an interesting thing. I just got a data point from Hartford Investments, a big investment company around bull markets, where markets are lifting, bear markets, where things are coming down. And it said the S&P 500 index that we're talking about has experienced 27 bull markets and 27 bear markets since 1928. But the bulls, the upswings are much stronger and much longer. On average, bull markets have gained 115% return and lasted 2.7 years. Bear markets on average have lost 35%, so just less than a third, and they last less than a year, or a few months. So, like I said, expect the unexpected. Probably makes sense to just have the mindset that, "Hey, this might be a poor year." But that doesn't mean you want to try and sidestep it or go to cash or move to the sidelines. I think it's much more prudent. Begin with a financial plan that helps you think through how you want to be positioned for the long haul, what you need your money to do for you, how it can realistically accomplish that, and stick with that plan because the good runs greatly outweigh the bad years.

0:08:13.5 CJ: All right. Well, Scott, you mentioned that you look back on our conversation a year ago. Can people, our listeners, find some of these past conversations on a website of yours?

0:08:24.6 SO: Yes. Absolutely. So, CJ, my blog, scottoeth.com, O-E-T-H, is really home base. I share a lot of my writing, my research, things I find of interest around the web, webinars, and very importantly, these WTIP Money Matters episodes. You get the audio and post them on that blog so people can find those there. You can go back and see what were we talking about a year ago or two years ago in January, and I think that's helpful. I think more people should spend more time looking at long-term historical trends to get a reasonable idea of what their expectations should be going forward, rather than relying on in-the-minute forecasts looking ahead. It's actually been a better guide, as far as I can tell. So, yes, CJ, it's all posted there. WTIP website as well. You also have these episodes. And I always love hearing from listeners. I've had a lot of great conversations coming out of these, so feel free to send me an email or give me a call as well.

0:09:28.2 CJ: All right. Scott, thank you so much. We'll check in again in a month.

0:09:31.6 SO: Thanks, CJ.