Should you be worried about treasury movements?

Treasuries are odd. Take a look at the following graph from the Financial Times. This chart visualizes real bondholder drawdowns for a 10-year bond which represents the biggest peak-to-trough decline in asset values at a given time. 

Dramatically, the current drawdowns are at levels not seen since the 70s. 

So what does this mean? 

The 70s were particularly bad, in part, because of the length of these drawdowns. Whether our current situation ends up worse is a question of time. 

Weakness in some corporates?

Though the economy has shown signs of strong growth, there looks to be some weakness amongst some companies—especially those with exposure internationally. 

• “Estée Lauder (EL) shares tumbled as much as 20% in intraday trading Wednesday after the beauty products maker said current-quarter profits could be less than half what analysts had expected” (Investopedia)

• “…Canada Goose Holdings (GOOS.TO), on Wednesday cut their annual forecasts as the luxury goods companies grapple with weak demand in high-growth market China” (Reuters)

• “Tesla, Inc. Q3 2023 earnings disappointed investors and analysts… [d]emand for EVs is not growing despite discounts, and the Cybertruck announcement may take even longer to generate positive cash flows” (Seeking Alpha)

Is the weakness an early sign of an economic slowdown, or just a flash in the pan?

Don’t panic.

As fears of a recession still float in the back of our minds, it’s useful to look at the relationship between equity market panics and stock market returns. Here is a table from ClearBridge Investments. 

Predictably, the result on drawdowns is not positive and serves as a reminder of why recession predictions are so popular, if often unreliable. However, when looking at cumulative returns, equity price movement is still positive reminding us that time-in the market is a more reliable strategy than timing the market.

Don’t believe us on HSAs?

We have been singing the praises of the triple-tax advantaged Health Savings Account (HSA) for some time, but if you don’t believe us check out this new article by Barron’s. Here are some key findings:

• “69% of people ages 55 to 64 would have spent less in a high-deductible health insurance plan.”

• “a 40-year-old who switches to a high-deductible plan and spends $481 less each year until retirement could have an additional $27,973 at age 65, assuming they made pretax contributions to a retirement account or HSA that earned a 6% return, according to Voya”

For more info on the HSA, check out our Knowledge Base Article.

Making more money won’t make you richer.

If you’re between 25 and 29, you might think that a higher salary is your key to building wealth.

But income and net worth are barely correlated at all!

In fact, someone’s salary only explains 5% of the variation in their net worth.

What I mean is, if you just used your salary to predict how wealthy you will be, you would be wrong 95% of the time.

So what is the key to building wealth?

The percentage of your income that you save and invest determines how wealthy you will be.

That’s how Ronald Read, a janitor, retired with $8 million dollars while Michael Jackson died with $400 million in debt!

What is one thing you regret spending money on every time?  

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