You will have no doubt seen all the market noise in the papers and on TV, with headlines capturing our collective attention. Interest rates are rising at the fastest rate in 28 years. Inflation is at 40+ year highs. Stocks and bonds are falling together for the first time in around 30 years. Talks of a global recession are rising. Indeed, these are remarkable times.
First, I want to assure that we are here for you. One of the unusual features we are dealing with is that stocks and bonds are falling at the same time, so making sure your portfolio is structurally sound is important to us. Here, we note that the broad stock market hasn’t fallen by as much as other periods (such as the 2020 covid crisis or the 2008 financial crisis) but the bottom line has been impacted in the short term.
No losses are comfortable, even the short-term recoverable ones, yet if we take a longer-term view it actually has some potential positives associated with it. For example, one major positive is that dividend and bond yields have increased meaningfully. All else being equal, this means many holdings in your portfolio should be in a much better position going forward.
From a bird’s eye view, we also want to be attentive and ensure that your portfolio continues to act in a way that is consistent with your long-term objective. This is really about portfolio integrity, where one of the key elements helping us is the idea of diversification. That is, we want your total portfolio to be capable of handling different types of setbacks and remain confident in your financial structure.
So, what does all this mean? Ultimately, we believe the integrity of your portfolio is in check and opportunistic adjustments are proactively being taken care of through your mutual fund portfolio managers. That’s the advantage of using actively managed mutual funds, like you are in currently.
Moreover, when thinking about downturns, we want to help our clients stay a few steps ahead of the pack. This might sound obvious, but the reason is actually premeditated. The market tends to front-run the economy both on the decline and the rebound. So, near the peaks, market participants can begin pricing in bad news before it actually happens (like we’ve witnessed this year). Conversely, near the bottoms, markets tend to bounce well before the bad news stops. Timing these points is not a game we recommend anyone play. This is why we use actively managed mutual funds – the fund managers use a “buy low, sell high” philosophy in their portfolio adjustments over time.
While noise and speculation can act as an emotional rollercoaster, the investment philosophy we are using involves investing in a variety of mutual funds, which helps support your plan in the long term. It’s also worth pointing out there are things that we (I say this in the broadest sense, including the smartest minds in the industry) can’t and won’t ever know. We tend to follow Warren Buffett’s lead here and simply bucket this as the “unknowable” because dealing with such uncertainty is part of investing and a large reason why fear and greed have a habit of exaggerating market cycles. It is also why diversification is so important to us.
Turning to your personal situation, if your long-term goals or situation has changed, I’m eager to reassess our plan to help you reach those goals together. As always, I’m very happy to help.