One economic conversation last year centered on whether Federal Reserve rate increases would cause a hard or soft landing, with a hard landing increasing unemployment, and a soft landing perhaps avoiding a recession altogether. Lately, a third scenario is receiving attention – the “no landing” scenario.
In the “no landing” scenario, inflation remains high despite the Fed’s rate hikes. This theory points to
the persistently strong labor market and continued consumer spending. If this happens, the Fed would
likely keep raising rates. The uncertainty reintroduced by this scenario could echo 2022, where both
stocks and bonds declined in value together.
The 60/40 portfolio was down over 16% in 2022 1. If you’re in retirement and withdrawing money from your portfolio for living expenses, down years like 2022 are problematic. To maintain the 60/40 allocation, you must sell some of everything when everything Is down. If you’re taking fixed monthly amounts, the percentage that you are withdrawing is increasing each month as assets decline in value.
This typically makes it difficult for retirees to maintain their lifestyle, even after markets recover. As an alternative, consider our needs-based approach to asset allocation. Integras Partners helps clients identify spending needs and goals and tailors investments accordingly. We allocate a portion of portfolios to short-term needs using fairly conservative investments. This allows longer-term assets to remain invested for growth, providing extra time, if needed, to recover from downturns.
1 Proxied by the Vanguard Balanced Index Fund (VBIAX)