VTI - Your Best Investment Choices For 2024 And Beyond

2023-11-07 09:48:59 ET

Summary

• Long-term investors should consider adjusting their portfolio for the upcoming year based on their view of four highly consequential issues.
• The recent negative trends in stocks and bonds may not continue into 2024.
• Factors such as the possibility of a recession, inflation control, global conflicts, and political developments may impact stock investments in 2024.
• Keep your portfolio as diversified as possible if you do not believe you can guess the outcome of these highly uncertain issues.

Is it too early to be considering how to position your portfolio for the upcoming year or even beyond? Not if you are a long-term investor, but still trying to be proactive. What will be the best ETF and fund investments may or may not be the same investments that worked best for you in 2023 or even further back.

Can anyone sort it out? Well, given the flip-flops that have occurred in the investment markets relatively recently, there likely will be even more changes ahead, some of which may have already begun. But which exact funds will be the best performers in 2024? Obviously, it's hard to know.

The best way to proceed is probably to maintain a steady core of investments and perhaps only to adjust your asset allocation to closely match your view of what may lie ahead for major asset categories. With a positive view of the U.S. and world economies in 2024, you might adjust your allocation to stocks higher; with a pessimistic view, you might switch over to more bonds.

The last three months have been downers for both stocks and bonds. The total stock market as measured by Vanguard Total Stock Market Index ( VTI ) has tumbled -3.41% in spite of being up 13.98% YTD. (Note: All performance figures in this article are as of 11/03/23). The total bond market, as measured by the Vanguard Total Bond Market Index (BND), following two consecutive calendar years of negative returns, could still be set to have a third year of negative performance. Will these negative recent trends continue next year?

Here's why I don't think so.

Major Issues Over the Next Year

There are several questions to consider whose answers will help determine how your stock investments may do in 2024:

1) Will there be a recession, as many highly authoritative economic heavyweights predict, unlike Fed Chairman Powell, who disagrees?

2) Relatedly, will the Fed succeed in getting inflation back down near 2% without causing major job losses - the so-called soft landing?

3) Will the two main regional conflicts, Ukraine and Russia, and Israel and Hamas, possibly spread into more global warfare, and possibly involve the U.S., more than already?

4) And finally, as the year progresses, what will be the fate of politics in the U.S., and especially of Donald Trump, as his trial dates proceed and the presidential election approaches?

While no one can know for sure how these issues will play out, in order to invest successfully, one may need to take a position on each. Each of these issues may not only affect how much you should allocate to stocks, but also, to which specific funds.

Will There Be a 2024 Recession?

Chairman Powell said in his news conference on Nov. 1 that the Fed sees no signs of a near term recession, given how strong the economy has been recently. But wait a minute. In the recent past the Fed has made several huge mistakes in predicting the economy ahead. One example: In early 2021 Powell stated that the Fed expected to hold interest rates near zero through 2023. Well, that might have been one of its worst forward-looking statements ever!

Unfortunately, for investors such as myself, who took that statement as one of upcoming policy, resulting predictions as to a positive bond market turned out totally incorrect. So, the lesson is: Don't take the Fed's pronouncements as gospel. No matter how authoritative or astute they may seem, no predictions of what the future may hold can be infallible; they may even have only a 50:50 chance of being correct.

But this time, I agree with the Chairman on whether a recession will be upcoming. There is little sign yet of a significant slowdown. (Pessimists have been predicting a recession for well over a year.) Instead, the latest measure of growth, GDP for the third quarter, came in at 4.9%! Unless the bottom falls out resulting from a now unforeseen event, we are unlikely to see a recession in 2024 which typically entails two consecutive quarters of GDP below zero. And, of course, recession usually leads to a decline in corporate profits. That, if it happened, would likely lead to lower stock prices.

Let me, now address each of these issues:

Will Inflation Be Brought Under Control and A Soft Landing Achieved?

Without a doubt, whether there is a full-blown recession or not, economic grown is bound to slow considerably in 2024, as already measured by economic data released recently, such as the "soft" Oct. jobs report. But, in reality, the job market has remained strong. (The soft jobs numbers were likely brought down by the inclusion of striking auto workers - see here. But auto workers are now back at work, suggesting that next month's job report may bounce back).

Inflation, while going down, is likely to remain stubbornly above the Fed's 2% goal. Just check prices you pay at your local supermarket; they still seem to be going up. (But the Bureau of Labor Statistics that computes "core" inflation data excludes food from the calculation, along with gasoline, which also seems to going up. Including both food and gas prices, inflation is up 3.7% from last year).

Will the Two Wars Spread?

This is probably the most difficult question of all to forecast. It would not be surprising to see the mid-East situation spread further, while the Ukraine war remains a "proxy" battle with aid pouring in from all sides, including the US. But so far, little effect can be seen on stock prices and that nonchalance by investors seems likely to continue.

Will Trump Continue to Be the Dominant Force in the Republican Party?

Finally, Donald Trump is likely be found guilty in at least one of his upcoming trials. Will this have much of an effect on your investments? Probably not, as nearly all of his base and some others remain of the opinion that he will be the best able to solve some of the nation's most intractable problems; see here.

Your Best Stock ETF/Mutual Fund Choices Over the Next Year

Given my belief that there will be no recession through next year, maintaining a high allocation to stocks as opposed to bonds will likely be one's best choice regarding asset allocation. Without a recession, corporate profits will likely remain good, and on the other hand, bonds, while doing better than they have in the last two years, will likely only do well in terms of spinning off high dividends.

I, like many others including within the Fed itself, believe that the Fed may still raise rates at most one more time and then enter a long pause. If the economy is still showing inflation above 2%, the Fed is unlikely to lower rates and that period may last quite a while. I have found that stocks tend to do quite well during such long pauses; see my articles on Seeking Alpha from Dec. 2022, and even earlier from Oct. 2021 .

Rather than throw at you the names of new funds to profit from this "no recession, but relatively slow growth" period with still pesky inflation, I continue to recommend most all of the stock funds I have owned for many years as some of your best choices.

Of course, there are many ETFs and mutual funds that are similar to my choices that may do as well or even better. My assumption is that one is best off with a diversified portfolio of funds/ETFs, mostly index funds, given category returns are so hard to predict. My recommended funds have done well down through the years, regardless of the investment climate.

My Specific Recommendations

Here, then, is a list of my own funds that have done quite well vs. their category and are still recommended for 2024 and beyond.

The returns shown following the fund name are for 1 year, and then 5 years, annualized. All funds have done better than their category average for either one or five years, except for Tweedy, Browne International Value ( TBGVX ).

Large Cap Blend

Vanguard 500 Index Fund Admiral ( VFIAX )/( VOO ) 19.09, 11.74

Total Stock Market Index Fund Admiral ( VTSAX )/( VTI ) 17.38, 10.89

Large Growth

Vanguard Growth Index Admiral ( VIGAX )/( VUG ) 35.16, 14.61

Vanguard PRIMECAP Fund ( VPMCX ) 21.44, 10.80

Large Value

T. Rowe Price Value Fund ( TRVLX ) 6.70, 9.12

VEIRX Vanguard Equity Income Fund ( VEIRX ) 4.06, 8.85

Vanguard Windsor Fund ( VWNDX ) 9.30, 10.55

Vanguard Windsor II Fund ( VWNFX ) 14.32, 10.66

AMG Yacktman Fund ( YACKX ) 11.44 9.41

Mid-Cap/Small Cap

Vanguard Small-Cap Index Fund Admiral ( VSMAX )/( VB ) 4.90. 6.23

Vanguard Extended Market Index Adm ( VEXAX )/( VXF ) 8.21, 6.11

Vanguard Mid-Cap Index Fund Admiral ( VIMAX /( VO ) 6.33, 8.04

Vanguard Small Cap Growth Admiral ( VSGAX) /(VBK) 5.01, 4.86

International

Vanguard Intl. Growth Fund Adm ( VWILX ) 15.38, 6.64

Vanguard Emerging Mkts Stock Idx Adm ( VEMAX )/( VWO ) 12.75, 2.90

Vanguard Pacific Stock Index Admiral (VPADX) 9.41, 3.69

Vanguard European Stock Admiral ( VEUSX )/( VGK ) Europe 22.85, 5.28

Tweedy, Browne International Value Fund ( TBGVX ) 13.37, 4.30

Fidelity Overseas ( FOSFX ) 20.37, 5.71

Sector

Vanguard Energy Inv ( VGENX ) 9.93, 2.65

Vanguard Financials ETF ( VFH ) 2.51, 6.84

Notes: 1. While I own mainly mutual funds, results are nearly the same as shown for Vanguard's ETFs whose symbols are shown in addition to mutual fund names.

2. Past performance is no guarantee of future results.

3. Vanguard Admiral Shares may sometimes be purchased as Investor shares at a lower entry minimum

For further details see: