This year has been a difficult one for the markets. With the Russian/Ukraine war, an increase in inflation (affecting gas and food prices the most), the Federal Reserve increasing interest rates dramatically, the disruption of supply chains, deleveraging of hedge funds, and a shortage of workers it’s no wonder volatility has increased significantly. While the last three years delivered record-breaking corporate earnings and above-average returns, a pullback was expected as markets go through business cycles. Uncertainty is not kind to markets, but it does reinforce some basics to reflect on:
The risk level of your portfolio is important. People tend to lose sight of risk in times of rising markets. Your portfolio risk should focus on you and your situation, i.e., goals, age, and time horizon.
If you are not yet retired, this is an excellent time to continue to invest and dollar-cost average into your portfolio. Taking full advantage of downturns will give you the opportunity to enhance your long-term returns. Who doesn’t like buying stocks at discounted prices?
If you are retired, be sure to review your withdrawal rate. While we can’t control the markets, what you pull out of your portfolio is something you have total control over. If the downturn persists, it may be time to review your expenses and adjust your withdrawals.
Uncertain and difficult markets reinforce the need to have a fully diversified risk-adjusted portfolio; investment allocations that are positioned to meet your goals. Remaining diversified will help minimize volatility and rebalancing will maintain your risk level. Our investment philosophy has weathered many tough markets and has resulted in clients achieving their goals.
While there is always a feeling that you need to do something different, it’s important to resist emotional changes to your investments. Remember that markets are leading indicators and are projecting the recent volatility that portends an increasing likelihood of a recession. Following the latest trend, investing in unregulated markets, and investing in abstract investments add greater risks and increase your chances of not attaining your longer-term goals.
Be prepared for continued volatility as the market adjusts to the Fed’s actions and inflation. Equities, historically, have provided returns above inflation over time, so patience is the key. If you have any concerns or questions, please reach out to us.