Smart Money Podcast: Your Money in 2024 – Investment Strategies for Financial Success

Welcome to NerdWallet’s Sensible Cash podcast, the place we reply your real-world cash questions. On this episode:

Achieve 2024 funding insights and get solutions to questions on long-term methods, inventory market volatility, actual property investments trusts and extra.

Investing author Alana Benson joins host Sean Pyles to debate investing in 2024. They focus on the significance of getting a long-term funding technique, the efficiency of the inventory market in 2023, the influence of rates of interest on investments, and the potential for development in sectors corresponding to AI and inexperienced vitality. Additionally they contact on the advantages of investing in 10-year Treasury notes (T-notes), actual property funding trusts (REITs) and high-yield financial savings accounts, amongst different recommendation for these seeking to develop their wealth by entering into investing within the new yr.

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It is a new yr, all people. Are you aware how your shares are doing? Do you have got a plan for the way you are going to handle threat within the markets? Have you ever rebalanced your retirement and school financial savings plans?

You probably have a well-diversified portfolio and also you’re investing for the long run, like for retirement, there isn’t any actual cause to emphasize in regards to the ups and downs of the market within the quick time period. And sure, on this occasion, once more, one yr is the quick time period.

Welcome to NerdWallet’s Sensible Cash Podcast. I am Sean Pyles.

This episode, we’re persevering with our Nerdy deep dive, taking a look at what we are able to all do to maximise our funds in 2024. The beginning of a brand new yr is an effective time to each take inventory of what is occurring with our funds and plan out what we would do for the subsequent 12 months. And right this moment we’re trying on the yr forward in investing. We’re joined by my fellow Nerd, Alana Benson. Welcome again to Sensible Cash, Alana.

Nice to be right here, Sean. Glad New Yr.

Thanks, and again at you. So Alana, you cowl investing and you’ve got a crystal ball, proper? So you’ll be able to inform us precisely what is going on to occur within the markets this yr and what to do with our cash.

Oh yeah, I positively have a crystal ball. I do know precisely what I am speaking about. No, I want I had that. I would be tremendous wealthy and it might be superior. However as everyone knows, that is not the way it works. Investing is not an artwork or perhaps a science. It is plenty of time, it is largely luck. And as everybody within the funding business all the time says, previous efficiency or how your investments have carried out up to now just isn’t an indicator of their future success. So we won’t ever actually take a look at what occurred final yr to determine what would possibly occur sooner or later, however we are able to discuss what to maintain an eye fixed out for, various things occurring out there, various things occurring on this planet, and how one can handle your threat.

Okay, truthful sufficient. And simply to be crystal clear about this, Alana and I should not funding advisors and are not going to let you know what to do along with your cash, however we’ll let you know what to learn about it and the way to consider it. All proper, nicely listener, we wish to hear what you assume too. To share your ideas, objectives, or considerations round investing in 2024, go away us a voicemail or textual content the Nerd hotline at (901)-730-6373. That is 901-730-N-E-R-D. Or electronic mail a voice memo to [email protected]. Stick with us. We’re again with a take a look at investing in 2024 in only a second. So Alana, let’s begin by reviewing the curler coaster journey that was 2023. Because the yr went on, it appeared like perhaps we have been heading out of the bear market, however then that upward arrow on inventory sheets began to level down once more within the fall. After which there was one other rally towards the tip of the yr. Give us a way of how the inventory market carried out general.

So earlier than we get into it, I simply wish to remind everybody listening that investing is a protracted recreation. Should you take a look at a single yr or a single month or perhaps a single inventory’s efficiency, it makes issues appear very dramatic. Like center college cliques dramatic. That being stated, 2023, yeah, it wasn’t the very best for the inventory market. Rates of interest have been actually excessive, and which means it has been costlier to firms to borrow cash, which in flip helps them develop. It permits them to rent folks and produce extra merchandise, and that then turns round and makes it more durable for them to generate income if they can not be doing all of these issues, like hiring folks and making merchandise that makes them cash. So it was a tricky yr.

Yeah. Effectively, have been there any standout sectors that did particularly nicely or particularly poorly?

Yeah, know-how and providers. So assume media or private providers, these did fairly nicely. And type of surprisingly, utilities and healthcare did much less nicely. However once more, I would encourage our listeners to pay extra consideration to long-term efficiency, which after I say long-term, which means 10 or 20 years reasonably than short-term efficiency. So even one yr is taken into account short-term efficiency.

We frequently discuss not investing cash that you’re going to want inside 5 years. That is one thing that funding advisors advocate fairly usually due to the volatility from one yr to the subsequent.

Alana, what sorts of classes do you assume the typical investor can or ought to be taught from what occurred in 2023?

I believe the massive takeaway is that lulls out there are fairly regular. Between about 2010 and 2021, we noticed one of many largest bull markets of all time. Individuals bought very used to their investments simply making a lot of cash. And when you take a look at a graph of the inventory market or the S&P 500 of all time, the leap between 2010 and 2021 was loopy large. And with GameStop and every thing, there are many new buyers for whom this yr has been one of many first occasions they’ve truly skilled down markets or simply type of boring markets. However folks have to remember the fact that downturns are a part of the market cycle and that they occur and so they’re simply not a cause to not make investments your cash.

There was plenty of speak towards the tip of the yr in regards to the bond market, particularly the 10-year Treasury or T-note. One rule of investing has all the time been that if shares are sinking, bonds will rise and vice versa. And that has been the idea for the tried and true 40/60 break up in, say, retirement or school financial savings funds. That appeared prefer it is likely to be falling aside on the finish of final yr. And there have been plenty of headlines in regards to the elementary shift in the way you would possibly wish to handle, say, a retirement fund. However then as we stated earlier, that modified once more within the blink of an eye fixed. What are we to make of this flip of occasions, and may we anticipate that the principles can all the time be upended like that?

Yeah, I believe it is secure to say that the market’s quote “guidelines” ought to be taken extra as ideas of what might probably occur as a result of nothing is assured. I believe COVID actually taught us that. And since COVID, the financial atmosphere has simply been type of bizarre. I’ve heard lots of people say that the financial vibes are simply off, which I believe could be very true. Lots of people anticipated a crash proper after COVID, however as an alternative we had one of many largest annual intervals of financial development. Since then, it has been this intense slowing as rates of interest have come as much as fight inflation. After which just lately, the 10-year Treasury took a dive. So does that assure shares will come up quite a bit? No. Might it occur? Positive. I believe this can be a lesson to would-be lively merchants. Should you’re actively shopping for and promoting your investments, it requires you to be exceptionally good at predicting the economic system more often than not. And the truth is that most individuals merely can not try this as a result of our actuality is inherently unpredictable.

The overwhelming majority of lively merchants lose cash. That is all the time one thing that we wish to carry up. Okay. Effectively Alana, let’s cease brooding on the previous. Inform us, as somebody who’s steeped on this planet of investing, what are you preserving your eye on as we kick off 2024?

So one of many issues that I am actually taking a look at is the AI sector. That actually exploded within the final yr, with among the high AI shares coming in at over 200% annual efficiency. That is an business that over a yr in the past the typical particular person hadn’t actually even heard of. I knew I used to be very unfamiliar with it. Now, AI is extensively identified and it is being carried out fairly quickly. And whereas it isn’t investing within the inventory market, I would think about rates of interest are going to remain fairly excessive for some time. So I’d positively try excessive yield financial savings accounts for issues like your emergency fund. Some accounts are providing 5% proper now, which is simply unimaginable. You do not have to threat your cash out there and you’ll entry it at any time. There may be actually no draw back to that and also you’re simply getting cash handed to you each single month.

Proper. Particularly while you examine that to a financial savings account that is not excessive yield. You would be getting pennies in comparison with what a excessive yield financial savings account would offer you.

Yeah, completely. I imply, it is bringing you a return that generally investments truly carry you, nevertheless it’s only a checking account.

Proper, it is fairly incredible proper now. However that might all change in a yr’s time. You by no means know.

So after we did this episode a yr in the past, we have been anticipating a recession and elevated inventory market volatility. As we document this podcast, we aren’t wherever close to a recession. What do you assume the surprisingly resilient economic system means for buyers going ahead into the brand new yr?

I believe it is giving lots of people hope, and when it comes to the economic system, hope is definitely a really, superb factor. So as an example, folks considering that inflation goes up can truly influence inflation and make it go up. It is this loopy phenomenon. And if extra folks anticipate the economic system and inventory market to get higher, that makes it extra seemingly that individuals will make investments, which in flip truly helps the inventory market get higher. There’s much more psychology within the monetary markets than folks assume, which is actually loopy.

Psychology and simply vibes on vibes.

Persons are feeling out one another’s vibes.

So many financial vibes are occurring and we simply should preserve the financial vibes optimistic. And it is bizarre, however that generally works and it impacts the economic system. And simply because we aren’t at present in a recession doesn’t suggest that it could not nonetheless occur. And I am positive many buyers want to see extra development. I believe quite a bit will depend upon inflation and rates of interest. I would actually wish to see some firms get artistic with their vitality makes use of and lean extra towards inexperienced vitality. I believe that that is going to be a giant development within the subsequent yr. However I believe simply over the subsequent 10 years, I believe we will see plenty of that popping out as nicely.

I believe our local weather could be comfortable to see that as nicely. Effectively, given how unsuitable all the recession predictions have been, any phrases of recommendation on how one can transfer by this yr by tuning out noise and monetary predictions of every kind?

Yeah, particularly mine. Do not hearken to something I say. Simply kidding. I would say simply strive to not fear about it. You probably have a nicely diversified portfolio and also you’re investing for the long run, like for retirement, there isn’t any actual cause to emphasize in regards to the ups and downs of the market within the quick time period. And sure, on this occasion, once more, one yr is the quick time period.

Okay. Effectively, I wish to briefly contact on investing in actual property. The housing market, as you might be nicely conscious, has change into unaffordable for large swaths of the nation, however that isn’t the one approach folks can spend money on actual property. And right here I am eager about actual property funding trusts, or REITs. Are you able to discuss how these work and the way they may match into of us’ portfolios?

Yeah, so REITs are firms that personal actual property that makes cash. So if you consider one thing like an condo, you personal the condo, however you theoretically have a tenant in there that is paying you some cash that covers the mortgage, but additionally pays you just a little bit further so that you’re being profitable on it. So REITs help you personal stakes in actual property, similar to you’ll be able to personal a stake in a enterprise by shopping for a inventory. But it surely’s nice since you do not truly should personal an condo constructing and unclogged bathrooms or any of that. It’s extremely hands-off. So the cool factor about REITs is that they’re required to pay 90% of their annual revenue to shareholders as dividends.

In order that they persistently supply actually, actually excessive dividends, and that simply implies that each quarter or so on a daily schedule, they may pay you cash, which is nice. So REITs present one other stage of diversification plus the dividends, and that provides a very nice monetary incentive. However when you’re largely investing in simply firms, like within the S&P 500, investing in REITs provides one other layer of that diversification. So if the businesses begin performing poorly, REITs might or is probably not performing poorly, nevertheless it provides you one other benefit of one thing that may bolster your portfolio in troublesome occasions.

Okay. Now, neither of us is an funding advisor and it isn’t our job to inform folks what to do with their cash. And as you said earlier, we do not have a crystal ball for what is going on to occur as this yr goes alongside. However for listeners who wish to get actually severe about investing in 2024, what ought to they be eager about?

The largest factor, truthfully, is simply to begin. So if you have not been capable of make investments as a result of you have not had the funds, that is okay. However perhaps deal with rising your revenue in 2024, both by taking a look at new jobs that may pay you extra or by beginning a aspect hustle. I believe lots of people strive to create space in a very small price range for investing by slicing out issues like streaming providers or espresso. However in actuality, that is simply not going to offer you sufficient for retirement. I do know for me personally, I used to work in eating places, I by no means had any cash left over on the finish of the month. And the one approach that I might begin investing was by getting a special job that allowed me some further revenue and a few flexibility there. So your greatest wager is to attempt to improve your revenue reasonably than lower your price range.

Proper. The extra money you have got, the extra you are capable of make investments with it whereas additionally protecting housing and groceries, all that.

Okay. Effectively, Alana, every other phrases of knowledge for our listeners hoping to take advantage of their investments in 2024?

It’s extremely cliche clearly, however keep calm and keep on. Actually, I do know it is scary and unpredictable, however investing could be top-of-the-line methods to construct wealth, particularly over the long run. Should you’re making an attempt to time the market, it is extraordinarily seemingly you may miss out. So living proof, towards the tip of 2023, the S&P 500 was up 14%, however that was largely attributed to simply eight days out of the entire yr. So when you missed these eight days, you did not see the expansion investing within the S&P that it supplied. This type of factor occurs on a regular basis. So the way in which to truly acquire from the market realistically is to remain invested over a protracted time period so you may get these little pockets of development. And when you’re nervous about investing, once more, try these excessive yield financial savings accounts. These have far much less threat, nevertheless it’s a great way to expertise getting some curiosity in your pocket, particularly now that charges are so excessive.

All proper, nicely Alana, thanks a lot for serving to us out right this moment.

Yeah, you are very welcome. What’s developing subsequent week within the collection?

Effectively, subsequent time as we take a look at your cash in 2024, we will discuss how one can handle credit score and debt responsibly.

We will not undo our spending, sadly. So the very best factor to do is simply make a plan for managing it going ahead, and that may take among the stress out of it.

For now, that is all we now have for this episode. You probably have a cash query of your personal, flip to the Nerds and name or textual content us your questions at (901)730-6373. That is 901-730-NERD. You may also electronic mail us at [email protected]. Additionally go to nerdwallet.com/podcast for more information on this episode. And keep in mind to comply with, charge and evaluation us wherever you are getting this podcast.

This episode was produced by Tess Vigeland and me, Alana Benson. Sean helped with enhancing. Chris Davis helped with truth checking. Kaely Monahan combined our audio. And a giant thanks to NerdWallet’s editors for all their assist.

And here is our temporary disclaimer. We aren’t monetary or funding advisors. This nerdy data is offered for normal academic and leisure functions and will not apply to your particular circumstances.