February 2023

Is wealth creation possible amidst irony? We certainly hope so, because the financial world seems intent on placing itself in ironic situations. The business phrase that “you don’t know if you have a great company until it has gone through a near-death experience” is attributed to Jack Welch a former CEO of General Electric Company (GE). The financial crisis of 2008 put GE, which by then had moved from being an industrial company to being a financial company, into a near-death experience. The irony is that the experience is dismantling GE, not strengthening it. The financial arm left long ago. The health care arm left recently. The power sector arm will leave soon, and GE will become its aviation arm.

Rising inflation and rising interest rates were the primary reasons the S&P 500 Index returned -18.1% and the iShares Core US Aggregate Bond ETF returned -13.0% for 2022. Fortunately, inflation now seems to be dissipating. Stocks already reflect some of the good news, returning +7.6% in the fourth quarter while bonds returned +1.6% (bond yields fall when bond prices rise). The bull case for 2023 depends largely on whether the Fed “pivots” changing from tightening to easing monetary policy—but in the meantime a recession still looks probable.

The combination of services offered, the structure at Woodstock and the skills accumulated here is unique and very beneficial to our investment clients.

Where are Americans’ retirement assets? As of June 30, 2022, IRAs were the most popular vehicle, according to data from the Investment Company Institute, with $11.7 trillion. Defined contribution plans—such as 401(k), 403(b) and other plans—hold $9.3 trillion. The time-honored defined benefit plans hold a total of $10.5 trillion, but these are skewed to government plans ($7.3 trillion); private sector plans hold just $3.2 trillion because of the government’s excessive regulation of private defined benefit plans. The surprise is that annuity reserves account for only $2.2 trillion.[1] The grand total is $33.7 trillion worth of assets invested. The pension benefit obligations of defined benefit plans, particularly for government plans, may be more than the assets, meaning they are underfunded.