The Wall Street Journal talked about people using 401ks as emergency funds for unexpected one-off expenses or worse, ongoing expenses in the face of losing a job. The importance of an emergency fund, outside of a 401k or IRA can't be overstated. Forget about rules of thumb, three months or six months, go with what makes you comfortable. I am too conservative on this front so don't take my advice on a number of months, but going with what makes you sleep easier, feel bulletproof is a good idea.
Bloomberg had a good read about what I'd call a right place, right time era for "passive" investing for the ten years or so going into 2022 and questioning whether indexing might be suboptimal going forward. First I would not get carried away with stats like cited in the article that passive investing is 40% of the market. There are a lot of active strategies that use index funds. A point we make regularly; passive funds (the funds aren't really passive) used actively. That doesn't have to mean frequent trading, but an active strategy.
Pure indexing is not my preference but it certainly is valid. It is not less valid if it ends up lagging other valid strategies over the next ten years as the article guesses will be the case.
Reuters asks What's Your Plan B? We've looked at this dozens of times. I think it is crucially important. It's safe to say that over the course of the typical adult life, there will be a couple of curve balls that come at you. A well developed Plan B and even Plan C will help make bumps in the road less disruptive. Additionally, time invested cultivating a Plan B might be fun and productive in terms of learning something new. There's also the empowerment than goes with preventing or solving your own problem.
More from Reuters on the decades-long, ongoing study about happiness and the extent to which money does or does not make us happy. The way I've always looked at since before I knew about this study is that at some amount of income or savings you can stop worrying about money. That's different than being rich. Couples fight a lot about money. When you're in a position of no longer worrying about money, you have less to fight about, less to stress about. The path for most people to this outcome is living below there means. There aren't too many of us that will end up with $10 million dollars and be really rich. More accessible is living in less house than you can afford, driving your cars for a long time and not accumulating consumer debt.
InvestmentNews had a long write up on alternative strategies/liquid alts. Read the article but substitute ETF anytime it uses the word alternatives or any synonyms because this article read like one of the countless late to the part articles about ETFs from 2007 to maybe 2010.
McGinley’s survey of more than 200 advisors and financial professionals showed 43% plan to add exposure to at least one alternative asset class this year, and 46% anticipate increasing their average allocation to alternatives over the next three years.
What? Underlying the article is a sort of acceptance of alts did well last year so I should add some to client accounts. I have no idea what alts will do well in 2023, maybe none will but jumping in after a great year may not be such a great idea. Managed futures shot the lights out last year. If the bear market is over and we go on a 5 or 6 year bull run then I would expect managed futures to lag, maybe even go down. I am not confident that most of the late to the managed futures party crowd will understand that.
If you are going to dabble, it is vital to understand what the alt(s) of your choice is likely to do. Managed futures is likely to struggle when stocks go up. Merger arbitrage is never going to lead to the upside. That's ok though. Stocks are the thing that goes up the most, most of the time. You don't want your hedge or your protection being your top performer. Alts have different attributes and they mostly are about helping manage or mitigate equity volatility.
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