1. Single Stock and Concentrated Portfolio Risk
Fighting the urge to increase risk in one’s portfolio is extremely difficult. It’s something I (and all advisors) think about often. The human brain and the media coverage feeding it are (unfortunately) very emotional. When markets are at all-time highs, everyone wants to get more aggressive. When stocks get cheaper and equities struggle, most people don’t want to go anywhere near risky investments. It’s the “cognitive bias” we deal with and not conducive to long-term investment success.
As we currently sit near all-time highs, I see this very paradigm playing out. Particularly when it comes to single stocks and cryptocurrencies. I’m not saying there isn’t merit to investing in these volatile securities, however, I’d suggest everyone proceed with caution and stick to your plan. Below is an example from just this year on how single security investing can get ugly. As of 11/19/21, the Nasdaq 100 index was at an all-time high and up nearly 26% on the year. While many would consider this a fantastic year for the “market”, you’d have a completely different tune if you were instead invested in any of the large individual names below, which sold off anywhere from 37-85% from their all-time high. Individual stock/security investing can be a game-changer if done correctly, however, there is a tremendous amount of risk involved. Proceed with caution and don’t be overly concentrated.
2. Fed Chair Jerome Powell Remains in Office
Nothing much to elaborate on, but I do believe it’s important that Biden did not move to a new Fed Chairman. As our economy attempts to navigate an environment we’ve never seen before, it’s important the captain of the ship remained the same. From a rate perspective, I believe that rates will continue to gradually move higher, and the Fed will do its best to be accommodative.
3. COVID Unofficial 5th Wave
This is unfortunately what viruses do. They mutate and evolve to stay alive. I’m sure everyone is tired of hearing about COVID, but I do want to share some signs of optimism from a market perspective. Two years later—companies, the economy, and health care are much better equipped to handle disruption due to COVID.
4. Inflation
We continue to believe that inflation is transitory. As supply chains come back online and regain their footing, we believe you will see a decrease in the CPI number. Also, keep in mind that inflation numbers are based on price change year over year. This is important to remember since most of our economy was shut down 12 months ago, and many consumer balance sheets are stronger than ever and ready to spend. I recently wrote an article about this very subject if you have any interest in diving deeper.
http://www.retire-me.com/content/WhataboutInflation
5. After-Tax to Roth Conversions
As I wrote last month, rolling your after-tax contributions to your workplace retirement plan into a Roth IRA may be in jeopardy with the newest proposed piece of legislation. If passed, all conversions could be cut off after 12/31/21. If you think this could affect you, please don’t hesitate to reach out. Here is a link to the article from last month.
http://www.retire-me.com/content/AfterTaxtoRothIRAConversioninJeopardy
From here we urge everyone to remain balanced and stick to their financial plan. As the economy and legislation measures change, we will be sure to keep you updated.