Looking Forward 2022

Prior to my thoughts for 2022, allow me to look back where we have been. 2020 was the Year of COVID – the greatest public health crisis in over one hundred years. 2021 was the Year of the Vaccines. The closing of the economy, schools and travel shut down the global economy in 2020 and produced the fastest recession in history while US stock markets lost a third of their value in 33 days. (2, 3)

These recent events reinforce for me the wisdom of not managing investments in a vacuum of current events. A lifetime of successful investing is long-term, goal-focused, and plan-driven. I am convinced the economy cannot be successfully nor consistently forecasted nor timed. Wise words of the immortal Peter Lynch: “Far more money has been lost by people preparing for corrections, or trying to anticipate corrections, than has ever been lost in the corrections themselves.”

Dalbar,Inc. studies investor behavior and published a study reporting that over the twenty years ending December 31, 2019 stating the average equity fund investor averaged 4.25% while the unmanaged S&P 500 index averaged 6.06% (2). What? (1)

Allow me to explain. Many investors make less money than the investments in their portfolio. By trading in and out of the market, switching funds, chasing the hot fund or ETF, they ultimately make less money than if they held the investments for the long term.

How can you resist over-reacting to market movement, news events, or anticipation of the future?

Recognize that our nature as humans is emotional. It is programed into our DNA since the day of saber-toothed cats and cave-paintings to run at the first sign of danger. Yet, it has been documented over and over, reacting to the market volatility either up or down can be counter-productive to financial well-being. If you have issues managing your emotions, find an advisor to help you. If your current advisor is consistently pitching their latest, greatest, shiny object, consider finding a new advisor.

Four keys to keep from losing money: (1)

Do Nothing. A thoughtful and conscious decision to do nothing is a decision. Ask yourself: “Have your financial goals changed?” If your portfolio was designed to meet your long-term financial goals and those goals have not changed, then don’t change the portfolio.
Understand that money is like a bar of soap. Eugene Fama, economist at the University of Chicago and Nobel prize winner, said, “Your money is like a bar of soap. The more you handle it the less you will have.”
Never sell stocks in down market. Assuming your holdings are properly allocated and your plan considers that market declines will happen, you should never need to sell in a down market. This should hold true even if taking distributions. Call us with questions.
Trust that science works. A disciplined, methodical approach produces results. Boring? Yes. Newsworthy? No. But it works!

The near-term look for 2022 is full of excitement as well as foreboding…depending upon you perception. Unemployment is below pre-Covid levels so good for job hunters and pay raises but bad for employers seeking workers. The stock market (S&P500) is 40% higher now than it was before the Covid-crash. Good for all of you that followed rules #1 & #3 above. Bad for you that got out and stayed out longer than a few days. The US GDP is higher now than pre-Covid. The rapid recovery is testament to the strength of the economy pre-Covid. Good news for the recovery and people receiving “cost-of-living” increases to their pension. Bad news for commodities like lumber, meat, steel, and oil if you are a consumer of these items. Great news if you are selling them. (2, 3)

Generally speaking, the economy seems pretty strong. (4) So strong that the Federal Reserve is going to reverse many of the stimulus programs that were put in place following the Financial Crisis of 2008 and expanded in 2020 to boost our economy out of the Covid-Recession. It appears evident the FED will also begin raising interest rates to slow inflation (5). Even though rate increases are long since factored into today’s stock prices, increased rates may slow growth…this may be bad news. But increased rates will help savers with bank / CD / money markets.

If you know me at all, you know, I am not a forecaster, seer, or fortune teller. I know what I know, what I experience, what I study, what I believe to be true, what is knowable and finally, what is un-knowable. I know I am human. I know that the Global Financial Crisis of 2008, Global Pandemic of 2020, climate change, bitter partisan politics / elections, the recent 40-year spike in inflation and the reoccurring virus surges / variants continue to cause anxiety and fear. With all this “news” the financial markets have been volatile and many of us may be experiencing “volatility fatigue.”

What to do about your financial plan and investments for 2022? What are your goals? Priorities? How much of your spending will need to be funded by your investments over the next two years? Do your investments align with your risk profile? When was the last time you discussed risk / volatility with your significant other and also your financial advisor? What rate of return do your investments need to obtain to accomplish your goals? Do you need to take more risk? Can you afford less risk with lower returns?

Answers to these questions and others are the drivers of your financial plan and therefore your portfolio. The four-point guide presented earlier is a compass to managing your money. What matters the most to your future financial life has little to do with what the economy or stock market does. The real driver of your results is what you do and perhaps more importantly, what you don’t do.

I welcome your comments, questions, and concerns. I cannot predict. But I can plan. Above all else, thank you for being our clients. It is a privilege to serve you.

https://www.thebalance.com/why-average-investors-earn-below-average-market-return`s-2388519

https://www.macrotrends.net/2324/sp-500-historical-chart-data

https://www.cbpp.org/research/economy/tracking-the-post-great-recession-economy

https://www.morningstar.com/articles/1073955/2022-economic-outlook-recovery-far-from-finished

https://www.cnbc.com/2022/01/05/fed-minutes-december-2021.html

All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.

The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

Securities and advisory services are offered through Cetera Advisor Networks LLC (doing insurance business in CA as CFGAN Insurance Agency LLC), member FINRA/SIPC, a broker-dealer and registered investment adviser. Cetera is under separate ownership from any other name entity. CA Insurance License #0604093