As we look forward to what 2023 has to offer, we dive into key factors that we believe could impact the future of the market such as:
Why There Won’t Be a “Housing Bust” – Given recent trends in the U.S. housing market, it is becoming increasingly clear that the era of rising prices, cash offers, and sale prices well above asking is coming to an end. Many forces are at work in this housing market fizzle, but the biggest one is arguably rising mortgage rates, which at one point reached 7%. Housing prices overall remain much higher than they were in 2020, due to a surge in pandemic demand combined with constricted supply. The question now for many would-be buyers is, will there be a housing bust that drives down prices as we saw in 2006 – 2009? The answer, in our view, is no. Before the 2008 financial crisis, lenders were approving loans with little-to-no scrutiny of borrowers’ income, in some cases providing financing to people without seeing so much as a previous year’s W-2. In the current market, obtaining a loan requires borrowers to provide an exhaustive accounting of income, liquid assets, liabilities, and other information needed to ensure the debt can be repaid. Additionally, the days of banks creating pools of risky mortgages and trading them as securities are largely over, with few of those securities in existence today. Given the runup in prices and high down payments, CoreLogic estimates that housing prices would have to fall between 40% and 45% to put the same percentage of people underwater on their mortgage as there were in the aftermath of the 2008 Global Financial Crisis.1
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Why You Should Avoid Market Timing in 2023!
With a new year comes new possibilities!
Selling in and out of the market at the wrong times is a common investor mistake—but what would happen if you broke out of this habit? Investors often fall into the trap of trying to buy “at just the right time,” or selling stocks during a crisis when emotions are running high. To better help you avoid acting off emotions and fear, try downloading our guide, “How Market Timing Can Affect Your Retirement Plan2”. This guide explains these behavioral traps and offers potential solutions.
If you have $500,000 or more to invest and want to learn how you may be able to avoid these mistakes today, click on the link below to get your free copy:
Download Zacks Guide, “How Market Timing Can Affect Your Retirement Plan.”2
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Changes to 401(k) Plans May be Coming – Congress is racing to pass a spending bill that would fund the government in the new year but that could also alter the retirement landscape in a meaningful way. That’s because Secure Act 2.0, which is an extension of retirement policy changes enacted in 2019, looks like it will be attached to the bill. There are several key changes that readers should be aware of, assuming the bill is passed and signed by President Biden. One of the key changes is the age at which people must withdraw money from IRAs, known as Required Minimum Distributions (RMDs). With Secure Act 1.0, the RMD age was changed from 70 ½ to 72, and the new bill would raise the age to 73 starting on January 1, 2023, with the age moving to 75 on January 1, 2033. Being able to leave money in a tax-deferred account longer will arguably allow more time for compound interest to accumulate but also for people to work for longer periods of time. Another key provision in the bill is that employers may be required to automatically enroll workers in 401(k) and 403(b) plans starting in 2025, with automatic contributions ranging between 3% and 10%. The law would also raise the savings rate by 1% each year until it reaches up to 15%. Finally, the new law would increase the so-called “catch-up” contributions allowed in retirement plans, such that people over 50 could contribute an extra $7,500 a year to these accounts. For people aged 60 to 63, the catch-up amount increases to $11,250.3
The Bank of Japan’s Holiday Surprise – The Bank of Japan has notoriously kept its benchmark interest rate near the zero bound for a long stretch of time, holding rates super low even when other central banks have made adjustments alongside shifting economic cycles. Throughout 2022 as other central banks engaged in monetary policy tightening to rein in inflation, the Bank of Japan (BoJ) held rates steady at 0.25%. In a surprise year-end move, however, the BoJ announced last week a decision to allow the benchmark to rate rise to 0.5%, removing a cap on the 10-year Japanese government bond in the process. Once the cap was removed, the yield on the 10-year shot up to 0.40%, which seems like a small move but does signal a near doubling of the yield. In an effort to ensure that yields do not spike higher as the market is allowed to set rates, the BoJ has established a plan to purchase some $68 billion per month of Japanese government bonds to keep downward pressure on yields (quantitative easing).4
Why You Should Avoid Timing the Market This New Year – Sudden changes in the market can cause investors to fall into the trap of trying to buy “at just the right time,” or sell stocks during a crisis out of fear.
Both of these impulses are likely to lead to more failures than successes over time. When emotions are running high, we recommend focusing on the long-term view and sticking to your course. But before making any big decisions, check out our guide, “How Market Timing Can Affect Your Retirement Plan.”5 This guide seeks to explain emotional and behavioral traps that investors can fall prey to and offers potential solutions to common mistakes that many self-managed investors make.
If you have $500,000 or more to invest and want to learn how you may be able to avoid these mistakes today, get your free copy by clicking on the link below:
Disclosure