October 29, 2022 | Portfolio Splits, Gross Domestic Product Report,10-Year Treasury, Oil Companies, How spouse age difference affects social security

Portfolio Splits
I have been investing money for clients for over 40 years and it was not long into my career that I questioned rules of thumb like the best portfolio is a 60/40 split of stocks and bonds. I’ve always felt it was better to research deeply investments that were undervalued and would do well going forward. My fear has proven to come true over the years, especially now as according to Bank of America the 60/40 split portfolio is having its worst year in 100 years as the annualized change in its recent year-to-date value was down 34.4%. Year to date we are down a little bit in our portfolio but based on what we have I still believe we can have a positive return come December 31, 2022. With a 60/40 split based on what I see going forward I don’t think that has a break even for at least 3 to 5 years. I still stand behind my statement that rules of thumb when it comes to investing don’t work long-term.

Gross Domestic Product Report
Q3 GDP produced the first positive growth of the year as it increased at an annualized rate of 2.6%. The consumer continues to remain strong enough to produce growth as the consumption category grew 1.4% in the quarter. This was entirely due to the service economy, which was up 2.8% compared to consumption of goods, which fell 1.2% in the quarter. Gross private domestic investment continued to struggle as it fell 8.5% in the quarter. This was largely attributable to the decline in residential investment which fell 26.4%. Investment in equipment and intellectual property products were positives as they grew 10.8% and 6.9% respectively. The change in private inventories continued to weigh on the report as it subtracted 0.7% from the headline number and with the heavy inventories at retailers, I believe this could remain subdued for the next quarter as well. The major highlight came from the trade component which added 2.77% to the headline number. This came as exports climbed at an annualized rate of 14.4% and imports fell at an annualized rate of 6.9%. With the likelihood of the strong dollar remaining in place through the remainder of the year I'm skeptical that we will see another major benefit to trade as we close out the year. The final component, which is Government, was also a benefit as it added 0.42% to the headline number. Overall, I'd say the GDP report was good, especially considering a lot of the fear from people at this time.

Oil Companies
You have heard all the bad news about the big profits that oil companies are making but what you don’t hear is how much they spend and what they are doing for a green future. Both Exxon and Chevron are building offshore wind farms which will supply millions of homes on the East Coast with electricity. They’re also preparing production of hundreds of millions of gallons of fuel which will come from plants, garbage and even kitchen grease. Oil giant BP just spent $4.1 billion acquiring a company that replaces fossil fuel gas from wells with natural occurring biogas from landfills. The oil companies know that the times are changing and while they are accused of paying out big dollars to the shareholders, they are investing their profits for a greener future as well.

Product Shortages
Things have really changed 180° from less than a year ago when there were shortages of products available. Inventories are now so large warehouses are bursting at the seams. The vacancy rate in warehouses in the third quarter 2020 was 5% that has now declined to 3.2%. Currently, businesses are paying more per square foot in warehouses. Last year in the third quarter it was $7.13/square foot, the average has now climbed to $8.70/square foot. What does that mean to you as a consumer? Retailers want to get rid of these items costing them money just sitting in the warehouse. Consumers could see some great sales coming up in the future, keep your eyes open.

 

Harrison Johnson, CFP®: "How spouses age difference affects social security"