Staying Put for May - May Allocation

May 01, 2023

Welcome to May!  I’m pretty happy starting out this month as my investments in both TSP Coach and my sister site, My Funds Coach, both had the highest returns in each fund family.  It is worth nothing that for every fund family, I was 100% in the international market.  I have not been this solidly in the international markets since 2007-2008 when I was 100% in the I Fund for 17 months. 

I’m sure most of you will remember those years were the start of the great recession.  I’m not going to predict another great recession based on how I’m investing in a small number of funds, but I will point out the US economy is still in a dangerous spot.  We have had only 2 bank failures this year (with one more about to happen), which is not a high number in and of itself.  However, the value of those bank failures is on par with the September 2008 failure of Washington Mutual Bank, which was one of 25 banks to fail in 2008. 

So, in short, bank failures are going to happen, and when a massive failure happens like with Silicon Valley Bank and is then followed up by Signature Bank in the same month, we should all take notice.  As I write this First Republic Bank is on the verge of collapse and hopefully, it will be the last one this year.  If the trend continues and the value of the bank failures continue to be north of $100 billion each, then there will be reason to really pause and reassess the fundamentals of our economy. I’m not there yet.

I think we will dodge a bullet with the debt ceiling.  There is obviously no way to not raise the debt ceiling, but tighter fiscal controls could signal we are just a little bit more serious on our debt.  Our economy is not in a place to tackle this issue with a government shutdown or a lowering of our debt rating.  If you haven’t seen the news, France is now AA-, which is the low end of the second tier.  The US cannot afford for this type of downgrade to happen.

So where does that leave me with my investment decisions? I still think, that although the C Fund performed well this month, I see the imminent failure of First Republic Bank causing people to question the economy, stock market, and the Federal Reserve.  The Federal Reserve MUST keep interest rates high to lower inflation, and the longer they can do it and the higher they can go (yes there will probably be another hike in the near future), the more ammo they are putting away for a rainy day (read recession).  I am concerned about the international markets being able to continue their current strong performance, but for May, I’m going to remain in the I Fund 100%.  Keep investing!