The first half of 2022. Be curious. Annuities. Caring for aging parents on the Sunday Reads.

You’ll find an interesting and eclectic mix of topics and posts and videos in this Sunday Reads. It was a very rich week in the search for great reads and insights. So much for the dog days of Summer. Be curious. Think different on the Sunday Reads.

The first half of 2022 (H1 they call it) is in the books. And of course, the numbers are not good. U.S. stocks posted the worst first half in more than 50 years. And as I put in yesterday’s post, Canada was only half as bad. That was the Happy Canada Day Dividends edition.

Of course, Cut The Crap Investing readers are not surprised. While it was not inevitable I have long suggested that a recession and bear market was brewing and likely. Retirees should have ensured that they were rebalancing and were prepared with a defensive (enough) stance. Those in the accumulation stage need to put on their game face and battle helmet – ready to buy stocks and other assets during a decline.

I put commondities and energy stocks on the table.

Here’s a look at core vs more all-weather portfolio models on MoneySense.

So what’s next for the stock markets?

From this CNN Business post …

There’s also very little correlation between the S&P 500’s first and second half of the year performance, at least historically. The S&P 500 lost 21% in the first six months of 1970, but rebounded to gain 27% in the second half, according to data from the S&P Dow Jones Indices.

The bad news is that when markets fall this significantly, the following quarter isn’t always great. During the last three worst starts for the year, with declines of 5% or more, the S&P 500 fell in Q3 by an additional 6.8%, 2.2%, and 2.1% respectively, said Sam Stovall, chief investment strategist at CFRA Research.

More from CNN, I’ll refrain from overuse of quote marks.

But timing matters, Stovall added. It took only 161 calendar days for the market to to fall from its peak on January 3 to the current bear market. That’s much quicker than the typical 245 day average time frame.

Quick bears and slower bears

And a fast bear isn’t typically as big and scary as a slow, hulking one. In the past, markets that took less than 245 days to go from peak to bear, measured by a 20% decline threshold, posted losses of less than 27%. Those that take longer to drop post losses of 33%.

US stocks typically do well after entering bear markets, at least in the long-run. Stocks were up an average of nearly 15% one year after hitting bear territory, with an even better median gain of 23.8%, according to data from Ryan Detrick, chief market strategist for LPL Financial.

It’s not uncommon for stocks to stage quick recoveries from bear market lows.

That said, and as per usual we have no idea what will happen in the second half of 2022 or in 2023. I’d guess we have more declines in the second half. This post looks at the history of stock market declines and recoveries.

The key is to have an investment plan, and to stick to our investment plan.

Energy for the portfolio

Energy was easily the best performer during the first six months of 2022, rising 29% compared to a 21% drubbing for the broader S&P 500.

The Canadian energy sector was up more than 36%.

In the following chart, XLE represent the U.S. energy sector, XLY is consumer discretionary, while XLF is financials.

Oil to $380?

Given Russia’s robust fiscal position, the country can afford to slash crude output by as much as 5M bbl/day without excessively damaging its economy, but the results could prove disastrous for much of the rest of the world, as a worst-case 5M-barrel cut to daily supplies could push Brent crude prices to $380/bbl, according to JPM.

Bitcoin finished its worst H1 in 12 years.

More Sunday Reads

On Findependence Hub, a very good post from Jonathan Chevreau as he looks at his latest Retired Money article for MoneySense.

Rising rates make annuities more tempting for retirees.

As retired actuary Fred Vettese recently wrote, retirees may start to be tempted to implement his suggested guideline of converting about 30% of investment portfolios into annuities. As for the timing, Vettese said it is “certainly not now: but it could be sooner than you think.” He guesses the optimal time to commit to them is around May 2023, just under a year from now.

But timing any asset (even an annuity) is more than difficult. From Moshe Milevsky.

Finance professor Moshe Milevsky, who is writing a book on the history of annuities (following his co-authored Pensionize Your Nest Egg) advises investors to inch slowly into committing to annuities, since “I have no idea where long-term rates (the important ones) are heading, even if you have a clear vision of the Bank of Canada’s plans … when it comes to annuities and annuitization the mathematics are more favourable to acting slow versus all-at-once.”

Here is my review of that book …

Pensionize Your Nest Egg with Annuities: Your Super Bonds.

Dr. Graham at FiPhysician also looks at annuities with the purpose of “that money”.

You’ll find subheads such as Investments Can’t Do What Annuities Do, Stock-Replacement Features of Annuities, Bond-Replacement Features of Annuities, When I Retire: Replace Bonds with an Annuity, Purpose of Annuities When I Retire.

Another wonderful post from the doc.

There is a wonderful mix of post links and videos on Banker on Wheels – 5 super obvious signs we were in a financial bubble.

Including this header – Aswath Damodaran On How Inflation Affects Company Valuations And ESG Is “A Feel Good Scam That Is Making A Lot Of People Wealthy”.

I like to call the first attempt at the green shift as Envirofraud. We are paying the price. So far government agencies and others in the enviro-movement have set targets with no viable plan. Also, we have not ensured energy security as we attempt to make the shift.

Canada has recently announced more CO2 targets without a plan.

I’m a big fan of the planet and “know” that global warming is real. Like you, I’d like to see a viable green transition plan that recognizes the energy reality. We are not even close on that front yet. The Envirofraud is causing us to take a step backwards.

Caring for parents

Here’s another very good post from Fritz at The Retirement Manifesto – The reality of caring for aging parents.

That’s the one important thing they don’t tell you about, even if you are fortunate enough to enjoy the freedom of a well-funded retirement. For most there is the burden of caring for parents while trying to enjoy retirement. I am a designated caregiver for my Mom who has advanced Alzheimer’s. My mother-in-law is 94. Without her husband she can be lonely and sad. That is more than common.

Children and other family members try to fill the void.

I hear the same story (that resembles our situation) over and over again.

We need to be prepared and to have a plan, so that we can enjoy life as much as possible (and it is possible), while providing the care that our parents need and deserve. It is a tricky balancing act.

The journey to one million

On Banker on Fire – The journey to one million: What I’ve learned along the way.

Money buys happiness and then …

Getting to One Million Won’t Make You Happy.

And neither will your second, or third, or the ones that come after.

If you think becoming a millionaire will make you happier, think again.

An increase in income does make you happy – right until about the $75k/year mark.  After that, it drops off quickly.

That is an excellent post. And congrats to Mr. and Mrs. Banker on Fire.

My wife and I also quickly got to the $1 million net worth figure. It was reached due to a combination of quickly paying down (and off) our mortgages, and investing at a very decent savings rate after the first mortgage was almost eliminated. And yes, rising real estate prices contributed greatly.

Investing + real estate = 🙂

Be curious

I just love those two words. To be curious can be a wonderful attribute for an investor writes Bob at Tawcan. Of course, curiousity can also have greater ramifications when we apply that to our general approach to life.

I really like this commercial from Viking Cruise Lines. The writing is wonderful, it is centered around those two words – be curious.

Bob applies ‘be curious’ with a look at Apple (AAPL), a company that I hold as one of 3 U.S. stock picks. Apple lives by another pair of words that drive the brand – Think different.

Apple is our best-performing stock by a long shot. I’ve held it from 2014.

And as always, we look at the week in review at Dividend Hawk.

On Seeking Alpha I penned – If I could only own 10 stocks.

A cheesy smile …

And Kraft (KHC) has gone with the cheese flow. Consumers call it Mac & Cheese.

You’ll now find that friendly moniker on the box. Of course, no one eats more Mac & Cheese (per capita/per mouth) than Canadians.

And we like it so much in Canada that it goes by a nickname, Kraft Dinner shortformed to KD.

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