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Need to Know: Throw away those target-date funds, and don’t hold bonds at all, says this daring new research

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The last Fed meeting of the year is upon us, as those record highs for stock markets just keep coming. Can the Fed keep those fires burning? It all depends on what Chair Jerome Powell and the dot plot have to say about future rate expectations.

Away from the fray, our call of the day turns a classic piece of investment advice on its head, saying the balanced portfolio plan is bunk and stocks alone can retirement wealth.

“Given the sheer magnitude of U.S. retirement savings, we estimate that Americans could realize trillions of dollars in welfare gains by adopting the all-equity strategy,” said Emory University Ph.D finance candidate Aizhan Anarkulova, and finance professors, University of Arizona’s Scott Cederburg and University of Missouri at Columbia’s Michael S. O’Doherty.

In their recently published research paper they challenge the basic premise of so-called life cycle investing that dictates diversification between stocks and bonds, and the young holding more equities than the old.

They used a data set of 38 countries and nearly 130 years of data and ran one million computer-generated simulations on American households, based on four potential retirement outcomes: wealth at retirement, retirement income, savings and money at death.

Their findings: “An even mix of 50% domestic stocks and 50% international stocks held throughout one’s lifetime vastly outperforms age-based, stock-bond strategies in building wealth, supporting retirement consumption, preserving capital, and generating bequests.”

And households that put 50% in domestic stocks and the other half in international are “less likely to exhaust their savings and more likely to leave a large inheritance.” They found that strategies investing in domestic stocks alone would have produced an average wealth balance of $1.05 million, while a so-called balanced portfolio would have a balance of $760,000.

Last year spelled disastrous returns for the classic portfolio setup that dictates 60% stocks and 40% bonds — aka the 60/40. Related: Case for traditional 60-40 mix of stocks and bonds strengthens amid higher rates, according to Vanguard’s 2024 outlook

The professors make clear in that 70-page research report that their all-stock advice will be hard for investors and advisers to swallow, largely due to bouts of short-term poor performance. But a balanced portfolio comes at “too high a price” for investors who will forgo “enormous economic gains” from a stocks strategy that can yield hundreds of billions of dollars a year for them, they say.

They suggest advisers and pension regulators “be revised to consider all-equity strategies as viable safe-harbor alternatives,” and offer financial education on “staying the course,” reporting standards that put an emphasis on long-term performance and regulations that help savers keep a long-term focus.

Read: ‘Magnificent Seven’ up for another bull run? What to expect from technology stocks in 2024.

The markets

Stock futures
ES00,
+0.12%

YM00,
+0.11%

NQ00,
+0.20%

are edging higher, with bond yields
BX:TMUBMUSD02Y
BX:TMUBMUSD10Y
steady and the dollar
DXY
slightly higher. Oil prices
CL.1,
+0.36%

are modestly lower.

Read: Bond yields always fall before Federal Reserve pivots to cut interest rates, research says

The buzz

A Fed interest-rate decision — and perhaps more importantly, the dot plot — is coming at 2 p.m., followed by a news conference with Chair Jerome Powell at 2:30 p.m. Ahead of that, producer prices are coming at 8:30 a.m.

Pfizer stock
PFE,
-0.21%

is sliding 7% after setting 2024 guidance that fell short of market expectations.

Netflix
NFLX,
+0.68%

released long-awaited viewership data on Tuesday, with political-conspiracy thriller, “The Night Agent,” topping the most-watched list.

Apple
AAPL,
+0.79%

rolled out new security patches to protect iPhone users from cyber theft.

Tesla
TSLA,
-1.14%

plans to recall over 2 million vehicles owing to autopilot control issues, and offer over-the-air software updates.

Argentina devalued its currency as new President Javier Milei put his shock economic plan to action.

At the COP28 summit in Doha, climate negotiators have agreed to transition away from fossil fuels for the first time.

Best of the web

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Nearly one in six teens say they use YouTube and TikTok almost nonstop.

The world’s leader in carbon capture shows why it’s a long shot.

The chart

Will Apple
AAPL,
+0.79%

lead the market to new highs? With the stock closing at new weekly highs last week and doing the same the past six weeks, some near-term consolidation wouldn’t be a total surprise, says Larry Tentarelli, founder and president of the Blue Chip Daily Trend Report.

But Apple’s weekly chart is pointing to a possible breakout to new highs over that period. That would take tech-focused exchange-traded funds, the Technology Select Sector SPDR
XLK
and the Invesco QQQ Trust
QQQ
along for the ride. Here’s his weekly Apple chart:

Blue Chip Daily Trend Report.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

Ticker

Security name

TSLA,
-1.14%

Tesla

GME,
+1.00%

GameStop

NVDA,
+2.21%

Nvidia

AAPL,
+0.79%

Apple

NIO,
-5.34%

Nio

CCCC,
+98.31%

C4 Therapeutics

AMD,
+2.38%

Advanced Micro Devices

AMZN,
+1.09%

Amazon

MSFT,
+0.83%

Microsoft

PLTR,
-1.52%

Palantir

Random reads

From Down Under, the world’s first mind-reading AI.

What parents really think about that Elf on the Shelf.

Happy birthday to Taylor Swift, the Trojan horse of academics.

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