Allocations in Stocks, Bonds, Silver, Gold, Cash

CDs or Savings Bonds should be popular this year

Maybe you survived 2022 without taking too big a hit, but many people, especially those in managed IRAs or 401(k) funds, took severe losses on the year. The worst things to own in 2022 were tech stocks, the NASDAQ’s 34% beating was better than only two other asset classes, British Gilts and the MOEX (Russian stock market).

Among the winners were the CRB Index (commodities), Brazil’s Bovespa stock exchange, Brent and WTI crude oil, silver, gold, and select stocks, especially energy producers. ExxonMobil (XOM) was nearly a double through November, since then pulling back a bit.

With the New Year just one trading day old, allocations may not be set in stone already, but plenty of people are paring back their stock percentage and moving more into cash and fixed income. Those with a bent toward long-term store of wealth have naturally made the move into gold and silver. For ages, investment advisors (who largely don’t make fees or commissions on precious metals) have advised a five percent allocation to PMs. That’s a tune in need of change.

In the current environment, more than just a few folks aren’t paying much attention to any advisors. There’s more than enough evidence to suggest that stocks aren’t making it and bonds got battered as the Fed pumped the rate pedal. However, as treasury rates are now exceeding most dividend yields on stocks, government and investment grade (IG) bonds are gaining appeal.

So, how does your allocation stack up? Anybody with an exposure of more than 50% in stocks is likely to get skinned again in 2023, but that’s exactly where most fund managers put your dough, even as money is fleeing the stock market in rapid fashion. The only reason stocks haven’t fallen further is the likelihood that they’re being propped up by the Plunge Protection Team (PPT), massive insider coordinated buying, the NY Fed’s trading desk, or all three at once.

US stocks markets are an absolute tragedy, a joke, and anything but free. The biggest money managers can move individual stocks any way they like. Take Apple (AAPL) for instance. Vanguard, Blackrock and Berkshire Hathaway own more than three billion shares between them, over 15% of shares outstanding. If these behemoths don’t like the direction of their company’s shares, they have more than enough money to fix that. As it is, when Apple does go down, they’re probably just buying more, so the price of the stock matters less to them than the size of their holdings. They crave control and they have it.

Your 100 or 1000 shares of any stock are meaningless in the larger scheme of things. The big institutional holders consider you lucky they’ve allowed you into their private club. It never ceases to amaze that people who often work very hard for their money have no problem handing it over to somebody else to manage. Americans in particular have become so accustomed to owning stocks, they fail to seek alternatives until it is too late. When they do show concern, they’re often chided for being too panicky or not understanding how markets function. It’s a wonder the brokers and fund managers don’t fleece every last retail investor.

If last year wasn’t warning enough, the first few months of 2023 may be. Stocks show no signs of rallying significantly. If anything, they appear ready to retest the lows from early October, as did the NASDAQ just last week. The tech slump is far from over and they’ll drag down the rest of the market even though many sectors don’t need any help. Overall, stocks are priced well beyond traditional norms. The CAPE Ratio is currently standing at 27.96, but the median is 15.91. Stocks could fall another 30-40% from current levels.

The point is, it’s your money, your future, your college, household, or retirement fund. Does it really make sense to just watch it go up and down without any means of control?

The past 12 years since the GFC have been fueled by easy Fed policy and loads of liquidity. That’s all changed as of 2022. The federal funds rate is no longer 0.00-0.25%. It’s already 4.25-4.50% and is set to go higher. So long as the Fed believes inflation to be a problem, interest rates are going to stay high. That scares money out of stocks and into money market funds, CDs, savings accounts, cash, and elsewhere.

That 50-60% allocation to stocks should be 25% or less, especially for retirees. Some banks are already paying 3.25% or higher on savings accounts; one-year CDs are pricing above 4.00%; and you can self-manage funds at Treasury Direct, starting with as little as $25 for savings bonds and $100 for many other low-risk, fixed-income products.

Of course, there’s always gold and silver, which you can buy online at eBay or any of the reputable online dealers. According to the best analysts and chartists, precious metals look to be at the beginning of a superb bull run. Even if gold or silver doesn’t do what the experts suggest - gain 15-20% or more this year - you’ll still be holding a valuable long-term asset.

Bottom line, an allocation of 10% stocks, 25% cash, 25% fixed income, and 40% precious metals looks like a winning combination for 2023.

Considering how stocks fared on the first day of trading for the year, they’re not where most of your hard-earned funds should be. Despite closing with a minor loss, consider the Dow was down more than 280 points before yet another miracle rally on zero news occurred. To a large extent, the same was true for the NASDAQ and S&P.

A rigged casino is what US stock markets have become. There are much better choices available.

At the Close, Tuesday, January 3, 2023:

Dow: 33,136.37, -10.88 (-0.03%)

NASDAQ: 10,386.98, -79.50 (-0.76%)

S&P 500: 3,824.14, -15.36 (-0.40%)

NYSE Composite: 15,154.45, -29.86 (-0.20%)