Dealing with the Uncertainty of the Financial Markets in 2022
Are you feeling uneasy?
It’s understandable if you are. This year got off to a rocky start. Inflation is at its highest level in 40 years. Financial markets are gyrating. There is geopolitical turmoil with the largest war in Europe in more than 75 years. The ground beneath us suddenly feels less solid.
Should you be worried?
Maybe, but probably not about your money. We have prepared for times like this, knowing that bear markets are part of life, kind of like hurricanes in the Caribbean. If you are in the accumulation stage of life, down markets allow you to buy shares in the great companies of the world at lower prices. If you are retired or nearing retirement, you should have sufficient reserves of cash and bonds to get you through a multi-year bear market.
You know the drill. We work to capitalize on bear markets through tax-loss harvesting and rebalancing. Our globally diversified portfolios allow us to seek advantages in markets that are hit particularly hard. We understand that neither we nor anyone else can predict the future, so we stay disciplined and have faith that the world is not ending and the equity markets will recover over time.
The truth is that rising interest rates and volatile equity markets can be good for us as long-term investors. Rising rates will help us increase the yield and long-term return on our bonds. Over time, we will literally get paid more money in interest. As equity investors endure market downturns and shrinking portfolios, they earn the right to reap the potential long-term rewards of superior equity returns. It is why J.P. Morgan said, “In a bear market, stocks return to their rightful owners.”
So, what wisdom can we glean from today’s uncertain, volatile, and scary world?
The future is always uncertain. This is a very hard lesson for most of us to internalize. We desperately want to know the future so we can protect ourselves against misfortune and capitalize on new opportunities. But the truth is that nobody knows what tomorrow will bring. The length and severity of the pandemic surprised most of us. Six months ago, few were talking about Russia invading Ukraine. Stop paying attention to the prognosticators.
Planning and preparation matter. We can be calm and confident during a protracted bear market because we are prepared. Although we don’t know when it is coming, we do know that bear markets and market volatility are not a thing of the past. The Boy Scouts are right—be prepared.
We are lucky. Nobody is invading our country. Nobody is bombing our homes. Our families are safe. That is not the case for the people of Ukraine and so many other parts of the world. We have reasons to be grateful.
We all need support. Life is uncertain and ever-changing. We all struggle at times. It is part of the human condition. When we struggle, we look to family, friends, and advisors for support to help us navigate the tough times. When facing a big challenge, we are often better when working together than acting alone.
Life can be difficult and tricky. Life can be joyous and fun. During good times and bad, we will get through it together. Please reach out to us if you would like to schedule a time to speak at email@example.com or call 207-761-4733.
Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested directly. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Investing involves risk including possible loss of principal.