Finimize - 🥂 Time for 2024

What’s going on here?

The global economy proved its worth this year, with stocks and bonds defying expectations to finish on a glittering high.

What does this mean?

A recession seemed a sure bet for much of this year, but the economy has held its own – so far, at least. That’s mainly thanks to three factors: US consumers leant on their pandemic savings, companies locked in long-term loans during the pandemic, and governments spared no expense implementing economy-supporting stimulus packages. Limber supply chains, cheap commodities, and a weakening housing market helped push inflation down toward the Federal Reserve’s (the Fed) target, too. That helped stocks hold steadier than expected, while the AI frenzy did major favors for US tech stocks. Mind you, it’s not just stocks that are making investors breath a sign of relief: US corporate bonds and gold pulled in returns of almost 10%, and bitcoin’s up some 150%.

Why should I care?

For markets: There’s a reason it’s tough to beat the market.

Investors banked on stocks rocketing in 2022 and crashing in 2023. Both times, they were wrong. That’s a lesson worth learning: the market has a habit of humbling investors, mainly because the consensus expectations have already been priced into asset prices. Bear that in mind when you’re watching the current uptick in stocks and bonds, a result of investors expecting the Fed to cut rates sooner rather than later.

For you: Remember your highs and lows.

New Year’s resolutions aren’t just for planning gym workouts and career moves. The end of a year allows investors to take stock of how their investments played out and why: poor timing, lack of research, emotional decision-making, or unforeseen circumstances are common reasons. It helps to document your investing decisions and rationale as you go, building out something of an investment journal that allows you to hone your process over time.

What’s going on here?

The global economy might’ve proved the pessimists wrong this year, but there’s reason to be wary of all-out optimism in 2024.

What does this mean?

The US is in better shape than this time last year, serving as inspiration for anyone who’s put away a few too many festive dinners. Inflation’s heading toward target, the Federal Reserve is probably done with interest rate hikes, and companies and consumers are holding steady. Added together, that makes a harsh recession less likely. If it stays that way, that’s good news for riskier assets like stocks and crypto, while defensive assets like bonds and gold could continue to benefit from falling interest rates.

But remember Warren Buffett’s words: “Be fearful when others are greedy, and greedy only when others are fearful.” When everyone’s optimistic, the market’s likely already accounted for the best-case scenario. That makes it vulnerable to any against-the-grain changes. And if the last two years taught us anything, it’s that markets tend to behave very differently from how investors expect. Let’s just hope it’s a pleasant surprise this time.

Why should I care?

For your portfolio: Trust issues.

Your best defense against uncertainty is diversification. You might consider stocks from different sectors and regions in case US tech loses its footing, say. Treasury bonds and gold could protect against a recession, while other commodities will likely hold their own if inflation reboots.

The bigger picture: Control the controllables.

Short-term investing can hinge on hindsight and luck. But over the long haul, it's the strength and consistency of your investment process that counts. That’s why it’s crucial to develop a system that guides you on precisely what to buy, what to avoid, and how much to invest in different situations. Develop a solid strategy for selling, too, outlining when to let go or hold on. Even plan ahead in anticipation of turbulent times or runaway markets. The more solid your strategy, the less you'll be swayed by emotions.