Broker Check

Monday Money Report

| October 09, 2023

On Friday, the September jobs report showed that the economy added 336,000 jobs, almost twice the expected number.  Unemployment is holding steady just below 4%, and wages are slightly up, by less than a quarter of a percent.[1] With this information, the market closed out a positive week.

The primary driver of the market this year has been just seven stocks.  The S&P 500 is a cap-weighted index. To calculate the index, you don’t take the share price of the 500 stocks and divide it by 500.  It’s a weighted average, based on the total value of each of the companies in the index. The seven largest companies, those at the top of the index, have returned over 90% this year.  The index as a whole is at 12.4%.  But if you looked at the 500 stocks in equal proportion, you’re pretty much even.[2] If you strip out those seven largest stocks, you’re at a loss for the year.

If you’re holding a diversified portfolio, chances are you aren’t keeping up with the index. That’s okay. The point of holding a diversified portfolio is to help manage big ups and downs, to smooth the ride. If you’re always chasing returns, you may be setting yourself up for a big drop. The best example here is the tech bubble of the early 2000’s. Another great one is real estate leading up the financial crisis in 2008-09. I’m not saying we’re looking at either of those scenarios repeating right now, but it something to consider.  Are you looking at just getting the best possible return, or are you looking at how your investments fit into your financial goals? It’s not money, it’s what money enables.

I recently read an article that suggested your portfolio should have your age in bonds, and 100 minus your age in stocks.  So a 30-year-old would have 70% stocks and 30% bonds.  It’s an interesting starting point, but one that I think is too simple, and also too conservative.  Other factors to consider when designing a portfolio include the time until you want to retire, and not just your age. If you have a pension, you can probably take more risk.  The pension takes the place of some of the bonds in your portfolio. If you work for yourself, either in a small business or in a largely commissioned job, you may want to hold more cash or bonds as a buffer. While you never know what the future holds, we’ve never seen a negative 15-year period in the stock market. So a 30 year-old could potentially invest 100% in stocks until they are closer to retirement.

If you retire at 65, you may be looking at 20 years or longer in retirement. Think of what inflation will do to your spending needs in that length of time. Having 65% of your portfolio in bonds could negatively impact your ability to meet your spending needs later in life.

It can be scary to jump into the market. Education, a plan, and a diversified portfolio that is aligned with your goals can all help.

Your action item this week is to file your taxes if you haven’t already.  If you’re on extension, the deadline is October 15th.    

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CovingtonAlsina is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

[1] Market Watch, S&P 500, Nasdaq notch best week in over a month, by Isabel Wong 10/06/2023

[2] CNBC, The 7 largest stocks in the S&P 500 have returned 92%, by Ryan Ermey 10/06/2023