How bad is it? If you’ve seen your monthly investment statement lately, you’ve likely been disappointed. It’s hard to stomach the drops this year in both the stock and bond markets.
Many stocks are down below pre-COVID number. Bonds - which investors typically look to for stability - have been ravaged as well.
We’d have to go back over 40 years to find a time where bonds have plummeted this far in a 12 month period. In addition, the S&P 500 has had one of the top ten worst years; and if we look at a more diversified 60/40 portfolio the performance also ranks in the top ten worst years.
There are multiple factors that have contributed to these declines: massive fiscal stimulus after an economic shutdown, Russia’s war in Ukraine, major supply-chain issues, and policy change at the Federal Reserve. This recipe has caused one of the most painful drawdowns of the last decade.
So now that we’ve got the doom and gloom out in the open, you might ask “what is my advisor doing about it?” We understand the economy has ebbs and flows, bear markets and bull markets, and that change is inevitable. We knew this was coming at some point. Inflation of 8% is unsustainable, but it is a predictable outcome when the supply of U.S. dollars is increased by 25%. We respect that The Bear has arrived.
At SFM, Adam—our Chief Investment Strategist—is constantly looking at how the investments we place in client portfolios are performing, and repositions as needed. We continue to hold broadly diversified assets and also search for inversely correlated alternative investments to counterbalance poor short-term returns.
It becomes even more challenging when stocks and bonds react the same way to economic realities. The portfolios we manage are holding up relatively well, and we are continuing to add value to our clients in other ways. There are still many things we can control and focus on like tax planning strategies, financial goal setting and getting your estate in order.
“How should I think and react going forward,” you ask? A good rule of thumb for any investor is to buy low and sell high. So while values are down, we do not recommend major changes in your portfolios. We are fully aware that many of you are beyond your comfort thresholds based on risk tolerance surveys. As humans we feel emotions that sometimes cause us to react in the short-term without thinking about the long-term. It is natural to have what is often referred to as a “negative bias” meaning the aggravation of losing money is greater than the pleasure of gaining that same amount of money.
If you find yourself on the verge of panic selling (thereby locking in your losses), let’s talk about gradually transitioning your portfolio to something that allows you to sleep at night. How quickly we forget that the S&P 500 was up 28% in 2021! Additionally, in our July 1st Money Matter$ newsletter, all 10 of our top client holdings have positive returns over the past three years, despite the recent declines. Continue to stay engaged with your finances, but let’s together focus on your long-term objectives.