I hope you and your family are well!
I have spent my life studying time-tested financial planning and investment management principles and strategies. My life’s work is centered around being a messenger of those findings and a conduit to help others pursue a better quality of life. Together, we incorporate these fundamentals into a well thought out financial plan and a beautifully diversified portfolio of assets. Every now and then, the financial markets put our foundation to task, and it’s not fun for anyone. However, it is an opportunity to strengthen our resolve and relationship.
The start of 2022 has been challenging for both stocks, as represented by the S&P 500-the top 500 publicly traded companies in the U.S., and bonds. The past several weeks have been the most challenging.
When market pendulums swing, they test our emotional stability to stay the course through the ups and downs. In the past, those pendulums have swung too much one way or the other further enhancing feelings of euphoria or panic. This time is no different as the S&P 500 has approached official bear market territory, a closing of 20% below its previous all time.
Together, we’ve worked through many market pullbacks going on 23 years now. Each one is precipitated by a unique set of causes. The current episode we’re working through is mostly in response to three issues: inflation, interest rate increases to stop inflation and the shortage/supply chain issues that are the result of COVID and Russia’s war on Ukraine.
From March of 2009, the bottom of the Global Financial Crisis, through the end of 2021, the S&P 500 has produced average annual compound results of 17.5%. In fact, from 2019-2021, despite a hundred-year global health crisis, stocks compounded at 24% per year. It’s a heck of a move to the upside when viewed through the lens of perspective.
As the Federal Reserve tightens the country’s monetary policy thereby raising interest rates, it’s evident that some of the move to the upside was due to excessive stimulation from the Fed. To that extent, we’ve given back some of those gains since the beginning of the year. Increasing interest rates is the current necessary action to bring inflation under control. Despite the recent ebbing and flowing in the markets, raising interest rates is much better medicine than letting inflation run any hotter.
Our planning and strategies over the years have been built to pursue your visions, goals and dreams. In most cases, they’re set up to try and take care of you and your family for the rest of your lives. The only way to capture the full results of stocks, which is historically double that of bonds, is to stay the course by riding out the temporary declines.
My advice this time is the same as the past: stay the course, remain calm and be patient. It is the only historical evidence that supports long term results, especially in a rising interest rate environment when bond prices go down. Our strategy has always been to influence what we can, release what we can’t and let it take us to the promised land over time. It likely will if we relax and let it unfold naturally. Our reinforced mindset and behaviors are the dominant predictors of long-term success not which way the market moves in the short-term. We continue to walk this same path together.
We have several resources at eastwoodwealth.com such as our Retirement Rules of the Road, Navigating the Ups and Downs of Investment Management and our latest Annual Letter that you will find helpful during times like these. I encourage you to follow us on our social media outlets as we continuously release new information. Facebook seems to be the most frequently used platform by Clients. Simply search Eastwood Wealth and click the thumbs up button for our communications to show up in your feed.
It is important to me that we always enjoy 100% open lines of communication. I’m here to listen and talk through any of this with you. Thank you for being my Client, it is a privilege to be of service to you and your family.
Tim Evans, CFP® CLTC
The opinions voiced in this material do not necessarily reflect the views of LPL Financial are for general information only. All performance referenced is historical and is no guarantee of future results. All Investing involves risk including the potential loss of principal. No investment strategy including buy and hold and diversification can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary and therefore this information should only be relied upon when coordinated with individual professional advice.
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