The US Federal Reserve kicked off the much expected first rate hike and penciled in another 6 more quarter-point hikes for this year. But the tempo rose a notch after Jerome Powell comes out and says that Fed will move more aggressively if needed 5 days later. This month, bonds come under intense pressure, as the rate hike expectations adjusted higher. IEF is down 4.06% and TLT is down 5.44% for the month. Across all maturities, the yields of bonds rose. But what is noted is that the long end of the yield curve is flattening and moving closer to inversion. An inverted yield curve is a sign that has preceded recessions since 1957 although historically that happens much later, 8-19 months later. Most other asset classes especially risky assets rose for the month after the initial knee jerk sell-off due to the conflict in Ukraine. Below is the breakdown by assets and geographies of the multi-strategy model maintained with iFAST as of the end of March.
The multi-strategy model's allocation to REITs and large caps, in particular health care and utilities sectors more than offset the losses from US treasuries. Profits from volatility trading during the month added to gains. In the end, the overall portfolio was up 1.2% for the month. This brings the year to date loss to 3.4%.
Let's see how our retirement heroes are faring at the end of March 2022.
John, 31 years old, looking to retire in 19 years
John invested USD 40K upfront at the beginning of November 2020 and he contributed USD 500 every month subsequently. As of the end of Mar 2022, he has contributed USD 48K and he is currently sitting on some comfortable profits of around USD 7K. If he sticks to his plan, he can expect to withdraw USD 7.5K every month when he retires in 19 years without ever depleting his retirement nest egg.
Paul, 51 years old, looking to retire in 9 years
Like John, Paul invested USD 40K upfront at the beginning of November 2020. However, he knows he has a shorter runway than John to compound his portfolio. The good thing is that he has a higher income than John so he contributes USD 4K every month subsequently. As of the end of Mar 2022, he has contributed USD 104K and currently sits on some comfortable profits of around USD 7K. If he sticks to his plan, he can expect to withdraw USD 9.5K every month when he retires in 9 years without ever depleting his retirement nest egg.
Sam, 66 years old, already retired
Sam doesn’t have any runway to compound his wealth as he is already retired. Fortunately for him, he had accumulated USD 1M of savings which he invested upfront at the beginning of November 2020 and started to draw out USD 10K every month from this portfolio. As of the end of Mar 2022, he has already drawn a total of USD 170K but his portfolio is still worth about USD 1.0M. In fact, he can expect to continue drawing USD 10K every month while his portfolio value remains about the same. This is a 12% withdrawal rate in a retirement account that never depletes.
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