What do you have your eyes on for 2023 given interest rates, inflation etc?

[neveragain1]

Tis the season. With the year coming to an end, I think it's safe to say 2022 was a bumpy year. Some of you might have just completed your annual review, maybe got a promotions/raises/bonus. Given the state of the economy, where do you see yourself putting your hard earned money to work?

Below are my 2cents on a few areas I've been thinking about. Imo, the fed will not cut rates over the next year. Even with softening CPI, at best the FED will keep rates the same (lesson learned from the 70s double top).

Please chime in/share thoughts/rip me apart, etc.

Private Ventures:

Entrepreneurs, partnerships, reselling etc. Private ventures is at the top of my list atm, (investing in early stage businesses with a high enough margin of safety)

Housing Market:

Prices have been coming down dramatically in the covid era havens (L.A., Atlanta, many parts of FL). At today's 30yr fixed rate[sup]1[/sup] with 20% down, that equates to buying the house 2x over, (500k sale = +500k in interest accrued). Investment property makes sense given the circumstances (know what a good deal is, or get lucky) - I'm hoping to get super lucky and learn to spot a deal throughout the process.

Stocks/Bonds:

Sure, 401k contributions and a handful of names. Wasn't planning on exceeding 20% of allocations, but things change. I am interested in hearing your thoughts!

Savings/CDs:

I'd be lying if I said I wasn't heavily invested here. So simple and financially irresponsible to choose a near 0% checking over a high yield savings for idle cash. I like Marcus by Goldman 3.20% as of today's date, bonus of 4.2% with their referral program[sup]2[/sup]

Brokered CD's have been ~4.60% - 4.75% for 9-12 month CDs. For those wondering what a brokered CD is, search for it on Investopedia[sup]3[/sup], superior to opening a CD at your local bank.

Crypto:

I am far from an expert. I've bought BTC at $99 and well into the $50k range. All things considered, this hasn't outperformed any of the aforementioned for me, relative to the risk. I'll still dabble, but don't expect allocations to be more than 5%.

*NOT FINANCIAL ADVICE*

--

[sup]1[/sup]Using ~7% for 30 yr fixed assumption.

[sup]2[/sup]Marcus by Goldman has a bonus of +1% over the current rate for the first 3 months if you're referred.

[sup]3[/sup]https://www.investopedia.com/terms/b/brokered-cd.asp

 

[jamesgray]

@neveragain1 T-bills.

Sweet zero risk 4% T-bills.

Half the return of stocks with 0% of the risk

Don't fight the Fed, they say.

That's why I went to 100% cash a year ago.

 

[user385]

@jamesgray But if you get ~5% as yield with 8% inflation you're losing money, aren't ya?

 

[jamesgray]

@user385 Yea, but not as much as that -50% destruction of tech stocks, LOL

See Buffet's Rule #1

 

[user385]

@jamesgray But you are losing money with T bills, just not as much as if you held cash.

 

[jamesgray]

@user385 Sure, but it beats the fcck out of losing 50% of my net worth like all the greedy suckers . When everyone said holding cash was for dubm back in summer 2021, I figured that was a good time to go to 100% cash. Haven't lost a dime during this market crash. Account is at all time highs.

 

[user385]

@jamesgray Oh okay, so we agree on the premise that it's not ideal, butright now there's no better option =(

 

[palvadorsichards]

@neveragain1 Lotto options trades.

 

[rescued1]

@neveragain1 Waiting for CD rates to go higher then going to lock in a nice rate.

 

[mikeseven]

@rescued1 What’s a decent rate? I’ve seen 1-3mo lately around 4.5%

 

[rescued1]

@mikeseven I am hoping for 5% with the next rates hike.

 

[klortch]

@neveragain1 I’m always long/ short. No need to get into specifics but it focuses on correlation, volatility (adjusted), and carry. In short, vol adjusted returns in mid to high single digits with an incredibly low vol base is the goal. At some point, MMF yields could nix the need to operate such a strategy, even with the perceived value discrepancies between my long and my shorts.

Equity wise, if bear market continues, I’m modeling for another leg down, which is the large leg down- SPX ~2,500 - before we bottom and grind out ~4-5% CAGR in stocks over the next few years on a lower PE ratio / higher earnings yield — ie. Expected Wider equity risk premium.

2023 :
- Bonds (high grade / IG) > aggregate US stocks (SPX); spreads in FI do widen however
- Small and Mid Cap US stocks > Large cap US; forward earnings estimates (PE) gap compresses
- USD == majors, < EMs - FX vol to lighten up
- Broad commodities higher
- Crypto- more skeletons in the closet

 

[resjudicata]

@klortch Careful, you're dangerously close to describing market timing. The boglehead mafia won't like that.

 

[resjudicata]

@klortch Nice post, just providing my opinion not criticism. If CAGR sits at 4.5%, even with inflation at 2% you are losing money when capital gains taxes are considered. This would create reflexivity effects, I can just say for my own part it would kill any incentive I have to invest. We are not Japan yet or maybe thats exactly where we are.

 

[neveragain1]

@resjudicata

sm. If CAGR sits at 4.5%, even with inflation at 2% you are losing money when capital gains taxes are considered. This would create reflexivity effects, I can just say for my own pa

Very good point. This instantly made me think of Muni CEFs or something similar. Would be interesting to go back and look at the premium/discounts to NAV during the rate hikes in 2018

 

[gypsyfriend]

@neveragain1 Gold and silver

 

[ryan432]

@neveragain1 Corporate bonds, finding investment grade with a decent rating paying 6.5%

 

[fromsalemwithlove]

@neveragain1 I just hope we will not lose as much. Best is move more stocks into cash.

 

[resjudicata]

@neveragain1 Small caps that will be shorted to oblivion. I am bag holder McGee.