Why sticking to your retirement plan is key amid 2024’s market shifts

As the fall approaches, we wanted to share some thoughts on the capital markets so far this year and reinforce some retirement investing fundamentals.

Market grows first half, then rotates in anticipation of a new economic cycle

First, let’s quickly review what happened in the first half of the year. The U.S. markets performed very well with the S&P 500 up double digits, with a small concentration of U.S. stocks — particularly AI-related tech stocks — driving much of the growth.

Starting in July, there was some market rotation from large stocks to smaller-cap stocks that did not participate in the first-half run-up. Larger companies with ready access to capital tend to be less sensitive to interest rates than smaller companies. So when the Fed begins cutting rates, this will ease funding costs across the board, and especially for smaller companies and consumers.

We also saw some market turmoil around the international carry trade where institutional investors were borrowing in the Yen at low interest rates in Japan and using that to leverage their investments in large U.S. stocks and other trades. The markets convulsed in reaction to the Japanese Central Bank’ interest rate increases — for now, that seems to have settled down.

What a rate cut could mean for U.S. investors

At the start of 2024, the market was anticipating multiple interest rate cuts from the Fed, however with several inflation reports coming in higher than expected, the Fed passed on doing a cut for several meetings. They are now expected to make their first rate cut this cycle at their upcoming September meeting. Even with a rate cut, rates are likely to remain relatively high through 2025, barring a recession.

For investors with savings outside of their retirement accounts, this can be a good time to double-check you are actually getting market-level rates on your shorter-term savings. Some banks have gotten creative in reducing their effective interest rates on savings accounts. It may also be a good time to review your money market fund expense ratios just as you would with any mutual fund or ETF.

Retirement investing is a long-term plan

As always, we encourage long-term thinking for retirement investing. Guideline’s portfolios are built on the philosophy of diversifying broadly across the major asset classes, especially among the most important ones such as U.S. stocks, international stocks, and U.S. bonds. If you aren’t in a managed portfolio, it is a good idea to keep an eye on your desired asset allocation and rebalance when necessary to keep you on target.

Guideline's investment committee is not looking to make any changes at this time to our portfolios or fund lineup. We did notice that Vanguard raised the expense ratios slightly on two funds in our managed portfolios — Developed Market Stocks (VTMGX) was 0.07% and is now 0.08%, and Real Estate (VGSLX) was 0.12% and is now 0.13%, which will raise our blended expense ratios slightly for our managed portfolios to 0.067%-0.069%. This translates to $6.70-6.90 annually for every $10,000 invested, which we believe is still quite reasonable for a diversified portfolio.

We will keep an eye on these, especially since Vanguard has recently brought in new executive leadership from the outside for the first time.

As markets move, we strive to provide market commentary and transparent insights into how changes impact investors and companies. We believe that staying focused on long-term goals even with market changes is one of the important disciplines of retirement investing.