If there is one word that I would use to define 2023, it’s “conflicted.” The most anticipated recession in history failed to emerge. And while better-than-expected U.S. economic data and strong corporate earnings helped push through weakness in 2023, leading indicators – data sets that are typically thought of as valid forecasters of future economic activity – turned negative in July 2022 and continue to flash caution.

As we kick off 2024, amid a relatively healthy U.S. economy and falling inflation, we know there is more news to come and, therefore, reason to be cautious in our investment allocations. Perhaps the biggest concern is the long and variable lag of monetary policy. The Federal Reserve (Fed) has conducted a historically aggressive series of increases in short-term interest rates, and it takes time for the full impact of rate hikes to flow through the economy. This could be the “year of the lag” when these historic rate hikes finally hit home.

Additionally, while we’ve seen improvement in the inflationary forecast, the return toward the Fed’s 2% target will likely be slower moving from here. Investors will need to be prepared for the potential chain reactions of changes in inflation, employment, growth, and geopolitics and how these events could impact their portfolios. Certain asset classes and investment styles typically struggle in these mixed environments, and others typically benefit. Of course, exactly how those chain reactions unfold remains to be seen, and that uncertainty has put us in a bit more of a defensive stance with our target allocation portfolios.

How can investors face uncertainty and stay invested?

Being defensive doesn’t mean being uninvested. If your time horizon allows, staying invested can be beneficial. In fact, through recessions and the typical post-12-month recovery, cash has historically been the worst performer when pitted against U.S.-based equities and fixed income. Whereas staying invested can potentially carry investors through a downturn, we believe the key, as in any environment, is to be diversified.

Diversification across asset classes and sectors can help investors mitigate significant drawdowns in one area of concentration. Technology stocks, for example, performed well in 2023 for good reason: strong earnings and continued growth potential tied to artificial intelligence (AI), a dominant market theme. The gains may be attractive but, historically, when tech stocks draw down, it can be extreme. Being diversified can provide a smoother ride for investors. And when the economic outlook is unclear and markets express uncertainty, the combination of diversification and a bias toward higher-quality investments across asset classes can offer a prudent strategy for staying invested amid potential downside risk.

How can Janus Henderson Direct Advice help investors navigate challenging environments and stay on track with their retirement objectives?

Direct Advice programs and their portfolios are designed to benefit from the investment and allocation expertise of our Multi-Asset team. The program is designed to give you confidence in your retirement journey by providing straightforward, diversified investment options matched to your risk preferences and investment goals. Depending on your needs, we offer Direct Advice Portfolios and Direct Advice Investments for retirement accounts.

In the Direct Advice Portfolios program, investors are placed in one of six portfolios designed to match their risk tolerance, time horizon, and investment goals by targeting different allocations of equities and fixed income. The portfolio target allocations range from 100% fixed income to 100% equities and can be rebalanced quarterly to maintain consistency with their respective investment strategy and in response to the latest market conditions.

Investors in the Direct Advice Investments program are offered a point-in-time recommendation into one of three Global Allocation Strategies. The three strategies seek to offer broad global diversification in a single investment by utilizing the full spectrum of Janus Henderson investment expertise and solutions. The strategies are not rebalanced quarterly, but rather designed to match a specific level of risk and return potential on an ongoing basis.

With both programs, you’ll receive free investment guidance from our team of licensed Investment Consultants. There are no additional costs for advice beyond the underlying fund expenses.