Welcome to our December 2023 Viewpoints, a monthly bulletin from PDS Planning to our valued clients and friends. Our goal with each issue of Viewpoints is to provide you with a wide variety of perspectives on life and wealth. Feel free to share with others.

By Drew Potosky, CFP®

Cash Yields

With interest rates at their highest level since 2001, money markets have stormed back to relevance with much more attractive yields for cash. The Schwab Value Advantage Money Market [SWVXX] has returned 4.83% year to date and will push above 5% with the final interest payment coming at month’s end. The best annual return in the last decade? 2.07% in 2019. (Source: Morningstar)

Table showing annual returns of the Schwab money market, SWVXX, since 2013.

Real Interest Rates are Positive

The real interest rate is the difference between nominal interest rates, like the currently stated 1-year US Treasury bond, and the inflation rate. As inflation rose precipitously into 2021, the rate of inflation surpassed the 1-year Treasury yield making real interest rates negative. Investors made money from the interest earned, but slower than the rate of inflation resulting in a negative real interest rate. As inflation has come down in 2023 and yields remain elevated, real returns are out of the red and back to positive territory (blue line). (Source: Longtermtrends)

A chart showing nominal yields of the 1-year US Treasury, inflation, and real interest rates.

Stick to the Plan

We’ve shared this graphic before and I’m sure we’ll share it again in the future. Market returns in the short-term can vary widely across stocks, bonds, and a blend of both. But the longer we expand our investing time horizon, the smoother and less risky investing tends to be. (Source: JPMorgan)

Chart from JPMorgan outlining the ranges of investment returns in stocks, bonds, and a blended portfolio from 1-year out to 20-year rolling.

The $700 million Dollar Man

Earlier this month, baseball superstar Shohei Ohtani signed a 10-year, $700 million contract with the LA Dodgers. The crazy part – as if $700m wasn’t crazy enough – $680 million is being deferred 10 year without interest. While he’s playing his 10-years with the Dodgers, he’ll [only] make $2m per year. But, from 2034 to 2043, he’ll earn $68m per year. It’s an astoundingly unprecedented contract that has the Dodgers in win-now mode, but may be hamstrung in the next decade when paying a collective $79 million per year to players who will be retired. (Source: MLB Trade Rumors)

We hope everyone has an exceptionally happy and relaxing close to 2023! Merry Christmas, Happy Holidays, and a Happy New Year!

IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by PDS Planning, Inc. [“PDS”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from PDS. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. PDS is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the PDS’ current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.pdsplanning.comPlease Note: PDS does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to PDS’ web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a PDS client, please contact PDS, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.