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Where is my return? Thumbnail

Where is my return?

It has been an interesting year for investors so far.  At the beginning of of 2023 many economists were predicting a mild recession. With interest rates much higher inflation was expected to fall and the economy was expected to slow. We got one out of two: inflation has indeed slowed to more reasonable levels but employment growth remains strong. So, what is really going on?

The economist joke

You may have heard the joke, “If you put ten economists in a room, how many predictions do you get?—11! There is a reason for this joke: accurately predicting the economy—not unlike the stock and bond markets—is difficult at best. In addition, the economy does not equate to the stock market. Making matters even more confusing, how investors feel about their investments is influenced by even more factors such as past investment successes and failures, personal or family situations, employment, political viewpoint and social-economic status. These non-investment factors can have a significant impact on whether you believe things are going well or not.

Higher interest rates are changing everything

Before the Federal Reserve began raising interest rates in March 2022, rates had been very low for about 15-20 years. Overall, that was a favorable investment for growth-oriented investments, including young technology companies. Growth stocks tend to be expanding quickly, promise potentially high returns, and are more volatile than value stocks. The cost of borrowing for startup companies was cheap and there was less pressure to earn a profit or pay dividends right away. At the same time, there had been little interest in stable companies with attractive dividends. Now the party seems over for some growth companies.

Growth versus value

Over the last few years, growth stocks ruled and value stocks have languished. However, every now and then the economy would sputter and investors would get interested in value stocks for their established, stable businesses and attractive dividends. Leading up to the beginning of 2023, growth stocks were considered expensive and expectations were high for an economic slowdown. That implied value stocks might hold up better than growth stocks but this has not been the case in 2023.

The 30% difference: 7 stocks

While growth stocks continued to lead over value indexes early in 2023, they really started to diverge at the beginning of March of 2023 when the stock market pulled back. Since then value-

oriented stocks have been flat while the growth stock indexes have outperformed. In fact, just seven stocks in the S&P 500 index have been responsible for 97% of the index return in 2023 through September 30th.1 In other words, if you did not invest in those seven stocks or an index having significant holdings in those seven stocks, you had a flat or negative return.

In addition, if an investor chose to be defensive by investing in large value stocks at the beginning of 2023, they would have experienced a really big difference in returns. So far in 2023, large growth stocks have gained about 24% compared to large value stocks which have declined by about 5% so far.2

The bottom line is that where one has been invested during this changing year could have resulted in substantially different outcomes.

Where do we go from here?

Navigating the investment markets can be difficult at best but trying to time the markets to enter at the bottom and sell out at the top is a loser’s game in our opinion. Unfortunately, investment managers who try to time the market can get lucky from time to time resulting in irresistible returns. When one sees those impressive numbers, it can be too easy to believe that an investment manager has the crystal ball to always make one’s investment go up.

Boring investment strategies

We’ve been investing for over 40 years. It has been our experience that a long-term investment approach is the most reliable and consistent contributor to financial success. Everything else is a distraction. This may sound boring and it can be hard to stick to—especially when your account is down 10, 20 or 30%. But time and time again we believe that investing for the long term has been the best strategy.

If you are trying to figure out if you have the right investment strategy, give me a call. We’re here to help. You can schedule a quick call with me by clicking HERE.

Lyman H. Jackson



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1 Sources: Market Insider quoting Apollo Global Management, published 9/25/2023 https://markets.businessinsider.com/news/stocks/sp500-spx-magnificent-7-tech-stocks-artificial-intelligence-nvda-tsla-2023-9?op=1 and JPMorgan Asset Management, Guide to the Markets, 2023 Q4 outlook. 2 Source: Yahoo! Finance (www.finance.yahoo.com); large growth stocks represented by the unmanaged Russell 1000 Growth index; large value stocks represented by the unmanaged Russell 1000 Value index year-to-date as of 10/23/23.

Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. FPS provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client after entering into an advisory relationship. Information herein includes opinions and forward-looking statements that may not come to pass. Information is derived from sources believed to be reliable. Information is at a point in time and subject to change without notice. Such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.

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