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.
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)
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)
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)
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!
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