Waiting for Take off

January 5, 2023

If you were watching the news media over the holidays, you undoubtedly saw many images of airports as the Southwest flight cancellation was extensively covered for quite few days. As I observed the repeated images of passengers waiting in airport boarding gates it occurred to me that there have been a lot of parallels between flying and investing over the past year.

I will spare you the obvious ones (turbulence, buckle up, put on your own mask before helping others..) The one I want to talk about today is waiting for takeoff.

More and more, I’m hearing in news media and from a few clients that the preferred investing strategy right now may be to just wait.

*Wait to deploy new capital or to adjust allocations closer to target (thereby allocating more capital into invested asset classes like fixed income and equities)

*Wait until there are clearer signs that inflation is declining

*Wait until the Federal Reserve pivots (ie: stops raising rates)

*Wait until earnings are released and we can observe a bottom

*Wait until we can get a better read on a recession (are we headed for one or not)?

*Wait to see what Q1 brings

*Wait for some sign of upward movement (ie: takeoff) – and then we can invest!

I certainly understand this reasoning. Why put your capital at risk in advance of clear evidence? Why act before you can be reasonably certain of the forward direction of markets? The answer (albeit frustrating and unsatisfying) is that markets are forward pricing mechanisms. Said another way, the movement in markets (up or down) almost always precedes the event you are waiting for as “proof” of your thesis. Markets price it in in advance, so by the time the actual event happens, markets have reacted already. Markets bottom before earnings do. Markets bottom before recessions end. List goes on and on but you get the point. If you are waiting to invest precisely before takeoff, odds are you may just miss the flight!

Knowing that you don’t want to miss this flight (even though the departure date & time are yet to be determined), here are a few things you can consider as we enter 2023:

1.Revisit cash – rates available on short-term cash reserves (via high yield savings accounts and money market funds) have risen drastically and are over 4% in some instances. Review your cash balances and ensure you are earning interest at a market rate where ever you can

2. Review your target to actual allocation – Your target allocation should be set based on your longer-term goals. You should not adjust it in response to how the market does in any given year. Rather, you should use it as a point of comparison against your actual allocation. There may very well be variances after a volatile 2022 for most asset classes. Perhaps you are overweight cash and underweight equities. Or overweight domestic equities and underweight international. Everyone’s comparison will vary. Review yours and consider rebalancing back towards target – even as the future remains uncertain. Your plan (and resulting target allocation) was set with the long term in mind, so don’t let short-term thinking derail you.

3. Consider adding to savings – the future direction of markets is impossible to know. But with the rapid rise in rates (on fixed income side) last year – and the sharp decline in equity prices, the likely skew (based on historical performance after down years) is in your favor. That’s not a guarantee – but if you are executing against a longer term savings plan with set contribution goals per year, why not add some funds now when investments are “on sale”?

4. Stay invested – for many of you, you may already be fully invested (and within your target allocations). If that’s the case, you’re in a good spot! But be sure to stay there. Now is not the time to abandon your plan.

Here’s to hoping we’re all on the plane well in advance of takeoff!

Note: All commentary above is as of the date of this post and is for education and informational purposes only. Windermere and its principals do not intend for this to serve as investment advice and are not responsible for any actions taken based on this article. Consult your financial advisor before taking any actions as it relates to your own investment portfolio

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